5/6/2014: Irish Manufacturing & Services PMIs: May 2014

Both, Irish Services and Manufacturing PMIs are now out for May 2014 (via Markit and Investec Ireland) and it is time to update my monthly, quarterly and composite series.

In this post, let's first cover the core components in monthly series terms:

1. Manufacturing PMI eased from 56.1 in April to 55.0 in May - a decrease that reduced the implied estimated rate of growth in the sector. Still, Manufacturing index is reading above 50.0 (expansion line) continuously now since June 2013. 3mo MA through May is at 54.8 - solid expansion and is ahead of 3mo average through February which stood at 53.1. So expansion accelerated on 3mo MA basis. The current 3mo MA is ahead of 2010, 2011 and 2013 periods readings. Over the last 12 months there have been only 3 months with monthly reductions in PMIs: November 2013 (-2.5 points), January 2014 (-0.7 points) and May 2014 (-1.1 points).
2. Services PMI eased only marginally from 61.9 in April to 61.7 in May - this implies that services sector growth barely registered a decline and remained at a blistering 61-62 reading level. Services index is reading above 50.0 (expansion line) continuously now since July 2012, helped no doubt by a massive expansion of ICT services MNCs in Ireland, which have little to do with the actual economic activity here. 3mo MA through May is at 60.0 - solid expansion and only slightly below 3mo average through February which stood at 60.3. The current 3mo MA is ahead of 2010, 2011 and 2013 periods readings. Over the last 12 months there have been 5 months with monthly reductions in PMIs, all sharper than the one registered in May 2014.

Here are two charts showing historical trends for the series:

The two series signal economic expansion across both sectors in contrast to May 2012 and 2013:

In line with the above chart, rolling correlations between the two PMIs have firmed up as well over recent months, rising from 0.33 in 3mo through February 2014 to 0.5 for the 3mo period through May 2014.

We will not have an update on Construction sector PMI (Markit & Ulster Bank) until mid-month, so here is the latest data as it stands:

• In April 2014, Construction sector activity index rose to 63.5 from 60.2 in March 2014. This marks second consecutive month of m/m increases. In the last 12 months, there have been 7 monthly m/m rises in the index and index has been returning readings above 50 since September 2013.

Core takeaways:

• Both services and manufacturing sectors PMIs are signaling solid growth in the economy,
• Jointly, the two indices are co-trending well
• Caveats as usual are: MNCs dominance in the indices dynamics and shorter duration of statistically significant readings above 50.0 line: Manufacturing shows only last three consecutive months with readings statistically significantly in growth territory; while Services index producing statistically significant readings above 50 for the last 6 months.
• Last caveat - weak relationship remains between actual measured activity in the sectors and the PMI signals: http://trueeconomics.blogspot.ie/2014/05/1552014-pmis-and-actual-activity.html

Next post will cover quarterly data and composite PMI.

8/5/2014: Irish Manufacturing & Services PMIs: April 2014

Irish Manufacturing and Services PMIs were out for April both showing aggregate gains, both not reported sufficiently in terms of data coverage to make any verifiable statements about composition of these gains.

Let's start from Manufacturing figures first:

• April 2014 PMI reading was at 56.1 - which is well above statistically significant bound of expansion. 
• 3mo MA through April is now at 54.8, some 1.9 points above 3mo MA reading though January 2014 and 5.5 points ahead y/y. Both good indicators of improving growth in the sector.

On Services side:

• April 2014 PMI reading was at blistering 61.9 - which is strongly above statistically significant bound of expansion. 
• 3mo MA through April is now at 60.0, basically flat on 3mo MA reading though January 2014 (60.13) and 2.8 points ahead y/y. Both good indicators of continued strong growth in the sector.

However, 3mo MA on 3mo MA changes are not spectacular in Services sector, as the chart below shows. This might simply be due to already sky-high readings attained in recent months.

Both indices show expansion in the economy (a changed from same period 2013) and as the chart below shows, correlation between the two indices is running strong (both co-move currently).

So based on top-level data, things are improving. The caveats are as usual:

1. We have no idea what is happening on the underlying side of the above stats as Investec & Markit no longer make available sub-indices information
2. Much of the PMIs-signalled activity is not coinciding with actual activity on the ground over the medium term (although some indications are that once we are firmly on growth trend path, the two sets of data - CSO and PMIs - will start comoving again).

In short, just as sell-side stockbrokers reports and Consumer Confidence Indicator, PMIs are least useful in telling the real story just when the demand for such story is most acute. 

2/4/2014: Irish Manufacturing PMI: March 2014

We now have Manufacturing PMI for Ireland for Q1 2014, so here are couple updated charts:

Few notable things in the above:

1. PMI now solidly above the 'statistical significance' range for the first time since October 2013. Also, March 2014 marks eighth consecutive month of PMI ahead of its post-crisis average (from January 2011).
2. The post-crisis average is still lower than pre-crisis average.
3. PMI continues to trend up with new short-term trend running from around June 2013.
4. 12mo average is at solid 52.1 and 3mo average through March (Q1 2014) is at 53.7 which is basically identical to 3mo average through December 2013 (Q4 2013) which is 53.6. 
5. Q1 2014 average is above same period reading for 2011 (49.8) and 2012 (50.1), but it is below same period 2010 average (56.1).

Key takeaway: solid PMI reading for Irish manufacturing - a good thing. As I noted before, Manufacturing PMI has stronger link to our GDP and actual industry output than Services PMI, so this is a net positive for the economy.

10/2/2014: Irish Services & Manufacturing PMI, January 2014

While on the topic of PMIs (see Construction PMIs update here: http://trueeconomics.blogspot.ie/2014/02/1022014-ulster-bank-construction-pmis.html), let's update also Manufacturing and Services PMIs data.

Services:

• January Services PMI index slipped slightly to 61.5 from 61.8 in December 2013. The deterioration was not material from statistical point of view, so the index remains effectively at the high level for the last 12 months.
• 3mo MA through January 2014 was 60.1 - above 56.2 in the same period through January 2013, and ahead of 3mo MA through November 2013. This is good news as it allows for some correction in monthly series volatility.
• The series are above their crisis-period trend and are still trending up.
• The index is now above 50.0 since August 2012 - a solid performance, with the rates of growth being on average above 60.0 since at least July 2013.

Manufacturing: 

• January Manufacturing PMI index also moderated to 52.8 from 53.5 in December 2013, with this moderation being significant, albeit shallow.
• On a 3mo MA average, index is at 52.9, which is ahead of 51.4 in the same period of 2013 and is ahead of the 3mo MA through November 2013.
• The index readings have rested above 50.0 nominally since June 2013, although they are significantly (statistically) above 50.0 for a shorter period of time, from somewhere around September 2013.

Overall, January posted slowdown in both indices growth, and 3mo MA for growth rates in the index is now negative for Manufacturing, and moderately positive for Services.

Longer-range good news is highlighted in the next chart, showing that in January 2014, levels of two PMIs were consistent with expansion across both sectors, contrasting the situation in January 2012 and January 2013.

Top level conclusion: The numbers show a good start to 2014, but Manufacturing remains a weaker point for the economy. Given monthly volatility in the indices, we need to see more data from PMIs to call the 2014 trends


As usual, the caveats apply: I have no data on sub-components of both PMIs - the core information that is no longer being made public by Investec and Markit (the publishers of the two series). Unfortunately, this means I no longer cover the two organisations' analysis of the components as these are unverifiable and statistically no longer testable.

8/2/2014: Irish Services Sector Activity: FY 2013

In the previous posts I covered:
Monthly data for Irish Services Index for December 2013: http://trueeconomics.blogspot.ie/2014/02/822014-services-index-monthly-series.html, and
Quarterly series:
http://trueeconomics.blogspot.ie/2014/02/822014-q4-2013-data-on-services.html

Now, time to update full year figures for 2013.

First, y/y changes between 2012 and 2013:

Main point - even with 5.7% annual growth in ICT services and 22.3% growth in Administrative and support services, overall services sectors expanded by only 0.9% in 2013. Do note, this is a value index, so inflation is factored in too.

But what about longer term growth? Sadly, we only have comparable data from 2009 on. So here are the changes between 2009 and 2013, cumulative:

And two main drivers in the above are ICT services (remember those MNCs that book activity taking place across Europe into Ireland, as if Irish operations produced them?) and Wholesale Trade services (now exhausted and falling 6% y/y in 2013). In other words, nothing really is growing over the long range.

And with this, over the last 4 years, cumulated growth in all services recorded was just 3.5%. Inflation alone exceeded this by almost double.

But things are getting better, right? Growth is returning? Right? Here's a chart comparing growth in 2012 compared to 2011 and in 2013 compared to 2012. The positive values are where growth conditions improved, negative - where they deteriorated:

No comment.

8/2/2014: Q4 2013 data on Services Activity in Ireland

In the previous post I covered some top-level data for Irish Services Index for December 2013: http://trueeconomics.blogspot.ie/2014/02/822014-services-index-monthly-series.html

As promised, we now shall take a look at the data on quarterly basis, stripping out some volatility in the monthly series. Note, all data below references seasonally-adjusted series.

In Q4 2013, compared to Q3 2014:

• Wholesale Trade activity shrunk 1.71%, pushing y/y drop to 5.85% which is worse than the 4.54% annual drop recorded in Q3 2013. The sector reading is the lowest since Q4 2010.
• Wholesale and Retail Trade, Repair of Motor Vehicles and Motorcycles sector activity fell 5.89% in Q4 2013 compared to Q3 2013, and there was an annual drop of 7.95% in Q4 2013, much worse than 0.19% decline recorded in Q3 2013. The sector is at the lowest reading for any quarter since Q3 2011.
• Transportation & Storage sector activity fell 5.73% in Q4 2013 compared to Q3 2013, and there was an annual drop of 4.47% in Q4 2013, much worse than a rise of 1.34% recorded in Q3 2013.
• Accommodation and Food Services sector activity rose 3.73% in Q4 2013 compared to Q3 2013, and there was an annual rise of 1.34% in Q4 2013, much better than a 3.6%% decline recorded in Q3 2013. The sector reading is at the highest level since Q3 2012
• In the above, Food services sector activity rose 4.89% in Q4 2013 compared to Q3 2013, and there was an annual rise of 5.27% in Q4 2013, much better than 0.99% decline recorded in Q3 2013.
• Also in  the above, Accommodation services activity rose 6.29% in Q4 2013 compared to Q3 2013, and there was an annual rise of 0.83% in Q4 2013, much better than 6.93% decline recorded in Q3 2013.

In the above chart:

• ICT sector activity rose 1.96% in Q4 2013 compared to Q3 2013, and there was an annual rise of 1.96% in Q4 2013, much worse than 4.45% rise recorded in Q3 2013.
• Professional, Scientific and Technical services sector activity fell 3.26% in Q4 2013 compared to Q3 2013, and there was an annual drop of 12.38% in Q4 2013, much worse than 5.16% decline recorded in Q3 2013. The sector hit its historical low in Q4 2013.

Now, to the last bit:

• Administrative and support service activities sector rose 0.96% in Q4 2013 compared to Q3 2013, and there was an annual rise of 20.94% in Q4 2013, compared to 21.77% rise recorded in Q3 2013
• Overall services activity fell 2.23% in Q4 2013 compared to Q3 2013, and there was an annual fall of 2.69% in Q4 2013, compared to a rise of 2.19% y/y recorded in Q3 2013.

And summary of q/q changes for Q4:

So decent news on Accommodation and Food sector side, poor growth on ICT services side and for Admin and backoffice side, and outright shrinking on all other sectors...

Annual data summary next.

8/2/2014: Services Index: Monthly Series December 2013

CSO released cheerful headlines for Irish Services Index, measuring activity in the largest part of the Irish economy.

Here's from the CSO release: "The seasonally adjusted monthly services value index increased by 1.3% in December 2013 when compared with November 2013 and there was an annual decrease of 1.5%."

Oops… things are up m/m and down y/y. But obviously the headline reads only the former, none of the latter.

"On a monthly basis, Information and Communication (+5.4%), Professional, Scientific and Technical Activities (+3.5%) and Administrative and Support Service Activities (+2.3%) showed increases when compared with November 2013.    Other Service Activities (-3.2%), Transportation and Storage (-1.6%), Accommodation and Food Service Activities (-1.1%) and Wholesale and Retail Trade (-1.0%), decreased when compared with November 2013."

Spot the problem? Controlling for ICT services (wait till Yahoo washes all its tax arbitrage through Dublin next) the only tangible, value-added activity that rose was Professional, Scientific and Technical Activities. We have no idea what drove this, but a rise here, excluding insolvency and mortgages arrears-related services and collection agencies would be helpful.

You really have to look at annual basis decomposition to see what is happening in the economy, though: "On an annual basis, Administrative and Support Service Activities (+27.7%), Information and Communication (+4.0%) and Accommodation and Food Service Activities (+2.4%) increased when compared with December 2012." That was is for increases: more paper pushing across tables, more back office supports and more adjoining ICT services. On the other hand, the rest of services are tanking: "Professional, Scientific and Technical Activities (-9.1%), Wholesale and Retail Trade (-8.2%), Transportation and Storage (-6.8%) and Other Service Activities (-6.5%) decreased when compared with December 2012."


So let's illustrate the above 'trends' in a few charts.

 Do keep in mind that, ex-ICT services, the Professional, Scientific and Technical Activities are our 'knowledge economy'. The trend here is down, down and down.

But now for the services sector overall:

The trend above is clearly showing a marked slowdown in activity in Q3-Q4 2013, just when we were being fed a steady diet of 'Things are Only Getting Better'. Am I missing something here? With all the ICT Services booming and all the Admin and Backoffice activities rising, we were supposed to get a strong retail season and a hopium-filled boost to domestic services too... But, apparently, we are having trouble recording these magnificent increases in the data?.. Oh, and do note, the data is in value terms, so inflation here is helping to push 'activity' up.

And the PMIs were booming too, for Services, just as the services activity was slipping?..


Next post will take a deeper look at the dynamics, controlling for monthly volatility. Stay tuned.

6/1/2014: Services PMI: December 2013

Markit/Investec Services Sector PMI for Ireland for December 2013 is out today, showing accelerated pace of growth in the sector. Per release: "The rate of growth in Irish service sector activity picked up at the end of 2013 as strengthening economic conditions contributed to a sharp rise in new business. The rate of job creation also accelerated during the month. Part of the strength in new orders was reflective of output price reductions, with discounts offered in spite of a faster increase in input costs."

The release goes on to note that "The rate of expansion in new business quickened for the third month running and was the sharpest since February 2007."

Overall, Q1 2013 average PMI in Services stood at 54.2,basically identical to 54.27 average for Q2 2013. This rose to 58.67 in Q3 and to 59.67 in Q4 2013. Year on year, Q4 2013 is now up from 56.0. Q4 2013 average is the strongest in 4 years running.

The PMI index is now above 50.0, adjusting for statistical significance, for 7 months in a row.

Charts to illustrate:

More analysis to follow, so stay tuned.

3/10/2013: Services PMI: September 2013

Markit and Investec released Services PMI survey press release for Ireland. As usual - the note is full of statements that can not be confirmed by information contained in the note itself.

On the side that can be reported/interpreted:

• PMI slipped from what appeared to be an unlikely jump to 61.6 in August to slightly lower, yet still strongly-expansionary 56.8. This is still a robust rate of growth. 
• I cannot tell if it was driven by a handful of MNCs or was broadly-based. Allegedly, the UK was the main source of strength for new exports orders, which are expanding, seemingly (reading the Markit release) at a more modest pace than headline PMI indicates. The UK receives huge volume of exports from Ireland on ICT services side (the likes of Google et al) and this is the major point of contention the UK Government has with Irish tax structures, so it might be that much of the services exports 'boost' comes from transfer pricing.

• Dynamics are good: there is new upward sub-trend established since September 2012 and this breaks the period of flat trend between September 2010 and September 2012. 
• Significantly, since around September 2012 the series have been - on average - in the statistically-significant zone of expansion (again, distinct from September 2010-September 2012 period when expansions on average were not statistically significant).

• On quarterly averages basis: Q1 2013 came in at 53.7, Q2 at 54.3 and Q3 came in at 58.7. Sounds impressive, however, if we account for the freakishly high reading in August (partially and imperfectly controlling for weather effects) the Q3 average sits within 55-56 range. Thus even with weather effects taken out, the overall Q3 result is strong.
• On annual basis, using quarterly averages: Q3 2010 stood at 52.5, Q3 2011 at 51.4, Q3 2012 at 51.6 and the current running average is well ahead of all of these, even if we take adjustment for unusually good weather.

Overall: good numbers. However, we have no tangible information as to the movements on profit margins, employment, export orders, new orders etc. You should read this note on some caution regarding interpreting PMI for Services for Ireland: http://trueeconomics.blogspot.ie/2013/09/592013-cautionary-note-on-irish.html. Combined analysis of Manufacturing and Services PMIs to follow shortly.

Note: To add to this, I have now been seemingly removed from the mailing list for the slightly more detailed version of release (or Investec stopped supplying one altogether). 

5/9/2013: A Cautionary Note on Irish Services PMIs

having just written about the Irish Services PMI performance in August, here's an update on the link between PMI and actual Services Activity Index, published by the CSO (one month lag).

The latest data from CSO on Services Index will be analysed in the subsequent post, but for now a health warning reminder: Services PMI has barely any bearing on the actual Services activities in Irish economy:

Basically, correlation - from January 2009 through July 2013 - between the Services PMI and CSO Services Activity Index is exceptionally poor: it stands at just 0.1367. Services PMI readings have no explanatory power when it comes to tracking performance of the Services Activity Index. On log-changes chart, PMI is capable of capturing just 0.0071% of variation in Services Activity Index. On straight levels even less. Lags are not yielding any meaningful improvements in explanatory power, neither do non-linear models.

In my view, this testifies to the extreme skews in PMI survey data to reflect the role of MNCs in ICT and IFSC sectors here.

5/2/2013: Services PMI v CSO Services Index... hmm...

In the previous post, I raised some questions about the real tangible quality of the PMI data for Services when it comes to reflecting upon the Irish economy. Here is a bit of more disturbing evidence. I plotted in the chart below the contemporaneous index of services sectors activity as measured by the CSO and the services PMI.

In short - there is no relationship. It is effectively zero. So either PMI does not accurately reflect services activity, or services activity index doesn't reflect it. Or more likely - both series have serious shortfalls. However, overall the question about PMI for services validity in providing an insight into the real economy is still open...