11/3/2012: Records-busting emigration thingy

A person on twitter asked me about the quick off-hand comment I made stating that we are witnessing 'record emigration'. Here are some numbers from the official CSO counts.

A note of caution: official stats (link here) cover data only from 1987 through April 2011, so all data is annual estimates through April of that year or, rather, year on year comparatives for the month of April. All of the data is based on 2006 census, preliminary numbers, so subject to revisions and implying that 2007-2011 data are themselves preliminary estimates. Births and Deaths are actual recorded. Emigration data is based on QNHS responses (rather lack of responses, signifying exit from the state) and thus subject, in my view, to significant biases. On the net, I would suspect the estimate of emigration figures is biased to the downside - primarily due to surveying methods used (undercounting emigration amongst the foreign nationals).

All said, we don't have any better data than that. So let's crunch through the numbers.

Let's start with the components of population change:

Per chart below, as per my claim on twitter, emigration (gross outflow of people from Ireland) has hit a historical high in overall terms in 2011 at 76,400 against the previous high of 70,600 in 1989. Emigration has surpassed number of births (75,100) in 2011 for the first time since 1990 (emigration of 56,300 vs births at 51,900). Now, number of births, like emigration is taken to population overall, so this comparative is pretty damning.

Now, here's an interesting thing to think about. Higher number of births (record in 2011, incidentally) might be actually keeping emigration numbers down and having double that effect on net emigration. How? Ok, imagine a family with a new-born. One of the parents is receiving maternity benefits and retaining the job. If the other spouse migrates, it is more likely that the mother and the child will remain in the state, if possible, as no destination state of their choice would be covering maternity benefit for new migrants. In addition, both spouses are likely to remain in the state until the maternity runs out. So there is at least some lag possible in terms of those families interested in exiting Ireland and their maternity benefits duration. The effect is unlikely to be huge, in my view, however.

Net effects are plotted in the chart below.

Net migration (immigrants less emigrants) is not at its historic high. In fact in 2011 it slightly improved due to high number of births. Note that higher numbers of births are correlated with conditions that also drive emigration. In 2011, there were total net emigration of 34,100 from Ireland against 34,500 in 2010. These are second and first highest rates of net emigration since 1990. The only two years when net outflow of people from this country was higher were 1988 (41,900) and 1989 (43,900).

It is worth noting, however, that due to higher birth rates, overall population did not decline in any year since 1991 and that 2011 growth in overall population (13,600) was slightly ahead of that in 2010 (11,400).

Let's mention some comparatives to averages:

Again, above summarizes very poor stats for 2010-2011. Natural population increases are running at 50% higher levels than pre-crisis averages. Yet overall population change is running at about 1/5-1/6th rate of pre-crisis average. Immigration numbers are off substantially, but it is the swing in emigration numbers that is driving the entire population change.

Chart below shows net migration trends by nationality:

Prior to 2009, Irish nationals contributed between 5% and 10.3% of the total net migration numbers. In 2009 it was 0%. In 2010 and 2011 Irish national accounted for 41.7% and 67.7% of total net migration  flows. Meanwhile, the largest driver of net migration prior to the crisis - EU12 states nationals - were the source of largest absolute numbers outflows (net) in 2009, but their share of net outflows has fallen to 38.6% and 12.8% in 2010 and 2011 respectively.

Lastly, let's perform a simple exercise. Suppose that over 2008-2011 the trend established since 2000 was present and that we performed on average the same as in 2000-2006 in terms of net outflows. What would have happened then?

As chart above shows, in 2011 76,400 people emigrated from Ireland. This was 47,900 in excess of 2000-2006 average, implying net ex-average emigration of 34,100. Over the years of the crisis so far, between 2008-2011, total number of people who emigrated from Ireland was 252,100, which is 138,000 over the level of 'natural' emigration (average). Taking account of the averages, excess net emigration over and above pre-crisis trend now stands at around 203,400 people.

11/3/2012: Did Global Financial Integration Contribute to Global Financial Crisis Intensity?

An interesting paper (link here) from Andrew Rose titled International Financial Integration and Crisis Intensity (ADBI Working Paper 341 ).

The study looked at the causes of the 2008–2009 financial crisis "together with its manifestations", using a Multiple Indicator Multiple Cause (MIMIC) model that allows for simultaneous causality effects across a number of variables.

The analysis is conducted on a cross-section of 85 economies. The study focuses "on international financial linkages that may have both allowed the crisis to spread across economies, and/or provided insurance. The model of the cross-economy incidence of the crisis combines 2008–2009 changes in real gross domestic product (GDP), the stock market, economy credit ratings, and the exchange rate. The key domestic determinants of crisis incidence that [considered] are taken from the literature, and are measured in 2006: real GDP per capita; the degree of credit market regulation; and the current account, measured as a fraction of GDP. Above and beyond these three national sources of crisis vulnerability, [Rose added] a number of measures of both multilateral and bilateral financial linkages to investigate the effects of international financial integration on crisis incidence."

The study covers three questions:

• First, did the degree of an economy’s multilateral financial integration help explain its crisis? 
• Second, what about the strength of its bilateral financial ties with the United States and the key Asian economics of the People’s Republic of China, Japan, and the Republic of Korea? 
• Third, did the presence of a bilateral swap line with the Federal Reserve affect the intensity of an economy’s crisis? 

"I find that neither multilateral financial integration nor the existence of a Fed swap line is correlated with the cross-economy incidence of the crisis. [Pretty damming for those who argue that the crisis was caused / exacerbated by 'global' nature of the financial markets and for those who claim that 'local' finance is more stable. Also shows that the Fed did not appeared to have subsidized european and other banks, but instead acted to protect domestic (US) markets functioning.] There is mild evidence that economies with stronger bilateral financial ties to the United States (but not the large Asian economies) experienced milder crises. [This is pretty interesting since so many European leaders have gone on the record blaming the US for causing crises in European banking, while the evidence suggests that there is the evidence to the contrary. Furthermore, the above shows that we must treat with caution the argument that all geographic diversification is good and that, specifically, increasing trade & investment links with large Asian economies - most notably China - is a panacea for financial sector crisis cycles.]"

Core conclusion: "more financially integrated economies do not seem to have suffered more during the most serious macroeconomic crisis in decades. This strengthens the case for international financial integration; if the costs of international financial integration were not great during the Great Recession, when could we ever expect them to be larger?"

Here's a snapshot of top 50 countries by the crisis impact:

Quite thought provoking. One caveat - data covers periods outside Sovereign Debt crisis period of 2010-present and the study can benefit from expanded data coverage, imo.

11/3/2012: New Car Sales - no sign of improving demand

Recently released data for new vehicles registrations for February 2012 shows continued lack of demand for durable / large-ticket items in Ireland. Here are the summaries - all data refers to the cumulative January-February sales for each year referenced (note, CSO does not provide seasonal adjustments, to yoy comparatives is all we have to go here on):

Pretty abysmal. The uptick in demand in 2011 is now appearing to be exhausted, despite the fact that many in the industry have expected a rise in 2012 registrations due to 2013 license plate effects.

Please, note - this flies in the face of the anecdotal claims that there are thousands of wealthy cash buyers holding back on domestic investment, as large ticket items demand is usually strongly correlated with domestic investment. In January 2012, car prices fell 2.4% yoy in Ireland, following a 2.6% annual decline in prices in December 2011 and 3.5% drop in November 2011. In other words, prices are going down, and demand is going down as well. Not exactly 'thousands waiting to pounce' on better deals, then...

8/3/2012: Economy on a flat-line: Sunday Times 4/3/2012

This is an unedited version of my article in Sunday Times March 4, 2012.

This week, the conflicting news from the world’s largest economy – the US, have shown once again the problems inherent in economic forecasting. Even a giant economy is capable of succumbing to volatility while searching to establish a new or confirm an old trend. The US economy is currently undergoing this process that, it is hoped, is pointing to the reversal in the growth trend to the upside in the near future. The crucial point, however, when it comes to our own economy, is that even in the US economy the time around re-testing of the previously set trend makes short-term data a highly imperfect indicator of the economic direction.

In contrast to the US economy, however, Irish data currently bears little indication that we are turning the proverbial corner on growth. It is, however, starting to show the volatility that can be consistent with some economic soul-searching in months ahead. Majority of Irish economic indicators have now been bouncing for 6 to 12 months along the relatively flat or only gently declining trend. Some commentators suggest that this is a sign of the upcoming turnaround in our economic fortunes. Others have pointed to the uniform downward revisions of the forecasts for Irish growth for 2012 by international and domestic economists as a sign that the flattening trend might break into a renewed slowdown. In reality, all of these conjectures are at the very best educated guesswork, for our economy is simply too volatile and the current times are too uncertain to provide grounds for a more ‘scientific’ approach to forecasting.

Which means that to discern the potential direction for the economy in months ahead, we are left with nothing better than look at the signals from the more transparent, real economy-linked activities such as monthly changes in prices, retail sales and house price indices, and longer-range trade flows statistics, unemployment and workforce participation data.

This week we saw the release of two of the above indicators: residential property price index and retail sales. The former registered another massive decline, with residential property prices falling 17.4% year on year in January 2012, after posting a 16.7% annual decline in December 2011 and 15.6% decline in November 2011. With Dublin once again leading the trend compared to the rest of the country, there appears to be absolutely no ‘soul-searching’ as house prices continue to drop. House prices, of course, provide a clear signal as to the direction of the domestic investment – and despite all the noises about the vast FDI inflows and foreign buyers ‘kicking tyres’ around empty buildings and sites – this direction is down.

More interesting are the volatile readings from the retail sales data.

The headline indices of retail sales volumes and values for January 2012, released this week were just short of horrific. Year on year, retail sales declined 0.34% in value terms and 0.76% in volume terms. Monthly declines were 3.7% across both value and volume. Relative to peak, overall retail sales are now down 25% in value terms and 21% in volume. January monthly declines in value and volume were the worst since January 2010. Stripping out motor trade, on the annual basis, core retail sales fell 1.94% in value terms and 2.74% in volume terms, although there was a month-on-month rise of 0.3% in value index. Monthly performance in volume of sales was the worst since February 2011.

Looking at the detailed decomposition of sales, out of twelve core Retail Businesses categories reported by CSO, ten have posted annual contractions in January in terms of value of sales. The two categories that posted increases were Fuel (up 5%) and Non-Specialised Stores (ex-Department Stores) (up 1.7%). The former posted a rise due to oil inflation, while the latter represents a small proportion of total retail sales – neither is likely to yield any positive impact on business environment in Ireland. In volume terms, increases in sales were recorded also in just two categories. Non-Specialised Stores sales rose 1.0%, while Pharmaceuticals Medical and Cosmetic Articles rose 1.5% year on year. Overall, only one out of 12 categories of sales posted increases in both value and volume of sales. All discretionary consumption items, including white goods and household maintenance items posted significant, above average declines in a further sign that households are continuing to tighten their belts, cutting out small-scale household investment and durables. The trend direction is broadly in line with November 2011-January 2012 3-months averages, but showing much sharper rates of contraction in demand in January.

The above confirm the broader downward trend in domestic demand that is relatively constant since Q1 2010 and is evident in value and volume indices as well as in total retail sales and core sales. More importantly, all indications are that the trend is likely to persist.

One of the core co-predictors – on average – of the retail sector activity is consumer confidence. Despite a significant jump in January 2012, ESRI consumer confidence indicator continues to bounce along the flat line, with current 6 months average at 56.5 virtually identical to the previous 6 months average and behind 2010-2011 average of 57.3. Based on the latest reading for consumer confidence, the forecast for the next 3 months forward for retail sales is not encouraging with volumes sales staying at the average levels of the previous 6 months and the value of sales being supported at the current levels solely by energy costs inflation.

Lastly, since 2010 I have been publishing an Index of Retail Sector Activity that acts as a strong predictor of the future (3 months ahead) retail sales and is based both on CSO data and ESRI consumer confidence measures, adjusted for income and earnings dynamics. The Index current reading for February-April is indicating that retail sales sector will remain in doldrums for the foreseeable future, posting volume and value activity at below last 6 months and 12 months trends.

Which means that the sector is likely to contribute negatively to unemployment and further undermining already fragile household income dynamics for some of the most at-risk families. During the first half of the crisis, most of jobs destruction in both absolute and relative terms took place in the construction sector, dominated by men. Thus, for example, in 2009 number of women in employment fell 4.2%, while total employment declined 8.1%. By 2010, numbers of women in employment were down 2.8% against 4.2% overall drop in employment. Last year, based on the latest available data, female employment was down 2% while total employment fell 2.5%. In other words, more and more jobs destruction is taking place amongst women, as further confirmed by the latest Live Register statistics also released this week, showing that in February 2012, number of female claimants rose by 3,479 year on year, while the number of male claimants dropped 8,356 over the same period.

The misfortunes of the retail sector are certainly at play in these. Per CSO, female employment in the Wholesale and Retail Trade sector has fallen at more than double the rate of overall retail sector employment declines in 2010 and 2011. Relative to the peak, total female employment is now down 10.2%, while female employment in retail sector is down 17.9%.

Traditionally, acceleration of jobs destruction amongst women is associated with increasing incidences of dual unemployment households. This is further likely to be reinforced by the increasing losses of female jobs in the retail sector, due to overlapping demographics and relative income distributions. Such development, in turn, will put even more pressure on both consumption and investment in the domestic economy.

CHART

Source: CSO and author own calculations

Box-out:

The forthcoming Referendum on the EU Fiscal Compact will undoubtedly open a floodgate of debates concerning the economic, social and political implications of the vote. Yet, it is the economic merits of the treaty that require most of the attention. A recent research paper by Alessandro Piergallini and Giorgio Rodano from the Centre for Economic and International Studies, University of Rome, makes a very strong argument that in the world of distortionary (or in other words progressive) taxation, passive fiscal policies (policies that target constitutionally or legislatively-mandated levels of public debt relative to GDP) are not feasible in the presence of the active monetary polices (policies that focus solely on inflation targeting). In other words, in the real world we live in, the very idea of Fiscal Compact might be incompatible with the idea of pure inflation targeting by the ECB. Which is, of course, rather intuitive. If a country or a currency block were to pre-commit itself to a fixed debt/GDP ratio, then inflation must be allowed to compensate for the fiscal imbalances created in the short run, since levying higher taxation will ultimately lead to economic distortions via household decisions on spending and labour supply. Given that ECB abhors inflation, the Fiscal Compact must either be associated with increasingly less distortionary (less progressive) taxation or with the ECB becoming less of an inflation hawk.

8/3/2012: ECB - policy dilemma remains

Much has been said, following today's ECB rates decision, about 'reappearing' inflation. Alas, much of that is, in my view, pure invented excuse. Inflation, if anything, is currently moderating - still well above the target, but declining. It his 2.7% in May-June 2011, then 3.0% in September-November and is running at 2.5-2.4% now (by my estimates for February). January inflation was the lowest since August last year.

While I personally think that we are facing inflationary pressures in medium term future, I don't see the urgency for tightening monetary policy today or for holding rates at 1%, unless one is to think that liquidity injected via LTROs into the banking system will start percolating into the real economy. The latter is unlikely to happen any time soon, in my view.

So what does the latest decision tell us about the ECB policy direction? Not much, if we are to go by the numbers. Instead, the latest decision continues to reinforce what I would term policy 'psychosis' - the situation whereby the ECB is clearly stuck between two targets (one acknowledged, aka inflation, another implicit, aka economic growth).

Charts illustrate:

First consider leading growth indicator and the relationship to ECB repo rate:

Growth conditions in the euro area clearly suggest rates at below 1%.

Now - inflation:

Inflation conditions clearly point to rates well above 2%.

I've highlighted this policy dilemma before and so far, there is nothing that has changed. So it's not about 'inflation threat' and it is not about 'growth support' - the ECB policy appears to be a clawback on LTROs...

5/3/2012: Fiscal Compact Referendum: Globe & Mail

My article on Fiscal Compact Referendum for the Globe & Mail : here.

5/3/2012: Profit Margins in Services and Manufacturing: February PMI

In the previous three posts I covered Manufacturing PMI, Services PMI and employment sub-indices from February 2012 PMIs releases. In this post we shall take a look at profit margins in both Services and Manufacturing.

All original data is courtesy of NCB, with analysis provided by myself. Indices reported below are derived by me on the basis of proprietary models.

Chart below clearly shows the dynamics in profitability across two sectors:

• Based on movements in Services index components for input costs v output charges, profit margins index in the sector has posted slightly slower rate of deterioration in February (-14.23) against January (15.08). This marks the second consecutive month of slower declines in profit margins. Thus, 12mo MA stands at -17.0 and 3mo MA through February 2012 is at -15.9, an improvement on previous 3mo MA of -16.4.
• Profit margins conditions in Manufacturing have deteriorated in February (-22.31) compared to January 2012 (-17.67) marking the 5th consecutive month of deepening declines. Thus, 12 moMA is now at -17.2 and 3mo MA at -18.7 against previous period 3mo MA at -11.1.

So tougher conditions for profitability in both sectors and, in line with that, tougher stance on employment front.

5/3/2012: Services & Manufacturing Employment - PMI data for February

In previous posts I have covered new data on Manufacturing PMI and Services PMI. In this post, I will look closer at Employment sub-indices by these two broad sectors.

As before, all original data is courtesy of NCB, with analysis provided by myself. Some of the indices reported are derived by me on the basis of proprietary models and are labeled/identified as such.

Chart above shows core PMIs for Services and Manufacturing, highlighting the following changes:

• Manufacturing PMI moved from 48.3 in January to 49.7 in February, remaining below 50 line, signaling weaker contraction mom. 12mo MA is now at 50.3 and Q1 2012 average running is 49.0 against Q4 2011 average of 49.1.
• Services PMI has improved from contractionary 48.3 in January to expansionary 53.3 in February, with 12mo MA at 51.0 below february reading. Q1 2012 running average is 50.8 and it is almost identical to 50.9 average for Q4 2011.
• Volatility of Manufacturing PMI had risen from the STDEV of 4.48 in 2000-present sample to 5.62 for 2008-present sub-sample (crisis period), while volatility of Services PMI had fallen from 7.75 in 2000-present to 6.60 in 2008-present.

The chart below summarizes Employment sub-indices for Services and Manufacturing PMIs:

• Employment index in Manufacturing has deteriorated from 49.5 (contractionary) in January to 49.3 in February, with 12mo MA now at 49.9, Q1 2012 running average of 49.4 and Q4 2011 average of 48.6.
• Employment index in Manufacturing has become more volatile during the crisis, with STDEV rising from 4.41 for the sample of 2000-present to 5.51 for the crisis-period sample.
• Employment index in Services has improved from contractionary 44.5 in January to still contractionary 47.9 in February, with 12mo MA at 47.7 and Q1 2012 running average of 46.2 against Q4 2011 average of 47.3.
• Employment in Services is less volatile since the crisis on-set, with STDEV of index running at 6.71 for the sample of 2000-present against crisis period STDEV of 5.64.
• Overall, Employment index in Services is virtually as volatile during the crisis period as the Employment index in Manufacturing. However, before the crisis onset, and historically overall, employment was much less volatile in Manufacturing than in Services. This suggests, given strong growth of our exports in Manufacturing compared to Services, that most of our current exports boom is explained not by real economic activity, but by transfer pricing - a conjecture supported by my analysis of the trade data here. Note, that this is also consistent with lower overall employment and lack of jobs creation despite the relatively strong singlas coming from the PMIs in both sectors.

Charts below clearly show that our 'exports-led' recovery is not creating jobs and is instead associated with overall net jobs destruction continuing to rage across the economy.

So what is going on? we can only speculate, but in my view, 


Reasons why our Services PMI growth is not translating into jobs creation are: 
(1) much of growth is due to transfer pricing via IFSC & likes, 
(2) Maj of services exports are not labour intensive (hours worked) but skills intensive (high-end skills generating high value added), 
(3) Domestic services continue to shrink (retail etc), 
(4) Profit margins are very severely strained - so profitability has ben shrinking since end of 2007 every month, implying cuts in employment to raise productivity, 
(5) Many of jobs in services exports are NOT employing domestic workers as lack of skills drives these jobs into international markets. And these are the growth areas, while domestic employment sectors are shrinking. 


Incidentally, this is not new. 


Since the beginning of data series, in Manufacturing, we had 33 months characterized by rising unemployment and rising exports (exports-led jobless recovery) against 43 months of jobs-creating exports-led growth. So there is a 43.4% chance that any recovery in Irish manufacturing will be jobless. This chance is much higher during the current crisis, with 20 monthly episodes of jobless recovery against just 8 jobs-creating recovery episodes.


Similarly, in Services, since the beginning of the data history, we had 31 episodes of jobless recoveries against 32 episodes of jobs-creating exports growth. So probability of 49.2% is associated with seeing jobless recovery if a recovery is exports-driven. Since the beginning of this crisis, there were 26 jobless exports-growth episodes against only 1 month when jobs growth coincided with exports growth.


The above, of course, show exactly how fallacious it is to anticipate exports growth to translate into jobs recovery.

5/3/2012: Services PMI - some improvement in February

In the previous post (here) we looked at the latest PMI data for Manufacturing. This post updates data for Services PMI. Subsequent posts will deal with employment and profit margins across both sectors.


As before, all original data is courtesy of NCB, with analysis provided by myself. Some of the indices reported are derived by me on the basis of proprietary models and are labeled/identified as such.

Table below summarizes main data:

 
Per chart above, core Business activity in the sector showed improved dynamics in February (53.3 - statistically significantly different from 50) relative to contractionary reading in January (48.3). 12moMA is now at 51.0, while 3mo MA is 50.0, suggesting that the series are returning to the moderate growth trend established since the beginning of 2011.

Per chart below, the trend in overall Services PMI is driven by New Business Activity which also showed significant improvement in February (53.5) against January (49.7), with 12mo MA now running at 49.8 and 3mo MA at 50.2.

The following chart plots a number of sub-indices. The critical one is New Export Orders which shows significant increase mom into solid growth territory. The sub-index rose from 52.8 in January to 55.2 in February, with 12mo MA now at 52.5 and 3mo MA running ahead of that at 53.4.

Another critical sub-index is Employment, which remained disappointingly below 50 mark at 47.9, but improved from 44.5 in January. 12mo MA is at a very poor level of 47.7 and 3mo MA is at even worse level of 46.6. The sub-index has now been showing contraction in employment since May 2011, and barring April 2011 strange move above 50 mark, the sub-index remains signaling rising unemployment since February 2008. I will deal with employment signals in more details in the subsequent posts.

Lastly, February data showed slight moderation in the price deflation in terms of output prices/charges from 46.7 in January to 47 in February. On the other side of the profitability equation, input costs inflation moderated to 54.8 in February from 55 in January. The two indicators combine to result in slowdown in the deterioration in profit margins from 42.5 in January to 48.2 in February. Please note, this is not the same as an improvement in the profit margins. Profitability sub-index is now averaging 44.6 for 12mo MA and 45.3 for 3mo MA. There is basically continued shrinkage in the profit margins for Irish Services suppliers every month since December 2007. More detailed analysis of profitability will be posted in subsequent posts.

In the next post we will look at the Employment signals coming from the Manufacturing and Services PMIs.

5/3/2012: Weak Manufacturing PMI for February

In the next few posts I will be updating the current data on Irish PMIs. This first post will be focusing on core PMI data for Manufacturing. All original data is courtesy of NCB, with analysis provided by myself. Some of the indices reported are derived by me on the basis of proprietary models and are labeled/identified as such.

Taking from the top:

• Core Manufacturing PMI has posted shallower contraction at 49.7 (statistically insignificantly different from 50.0=no change) in February. This signals compounded contraction on January deeper rate of deterioration (48.3).
• 12mo MA for core PMI is at 50.3 with 3mo MA at 48.9. Previous 3mo period average was 38.4, so there is no consistent break from the shallow negative growth trend so far.
• Same 3mo period in 2011 averaged 54.9 and in 2010 - 48.5. Again, data suggests roughly similar dynamics today as in 2009-2010, not 2010-2011 period.

• New orders sub-index reached marginally above 50 in February at 50.1, marking substantial improvement since January 46.8 reading. 12mo MA is at 50.2 - in effect showing no growth in the last 21 months. 3mo MA remains strongly contractionary at 47.6
• New exports orders posted a deterioration and slipped into negative growth territory at 49.7 in February from 50.9 in January. 
• Output subindex clearly shows the established flat trend that is running since mid-2011. Output rose to 50.4 (statistically indistinguishable from 50) from contractionary 47.3 and is now running ahead of 3mo MA of 48.8, but behind 12mo MA of 51.5.

Chart below shows more recent snapshot of data with clear evidence of flat - zero-growth - trend since mid-2011.

Two charts below detail other components of the Index:

• Backlogs of work slightly improved to slower contraction-signaling 43.8 from 41.1 in January
• Quantity of purchases also improved by posting shallower rate of decline at 48.7 agains 47.1 in January
• Critically, February output prices posted deeper deflation at 47 against 48 in January. Output prices are now staying in deflationary territory since August 2011.
• Input prices inflation shot up in February to 60.5 from already inflationary 58.3.
• The two movements above mean profit margins have shrunk in Manufacturing - although more details on this in later post dedicated to profits margins in both Services and Manufacturing sectors.

Real disappointment comes from Employment sub-index:

• Employment sub-index in Manufacturing has posted slight acceleration in contraction from 49.5 in January to 49.3 in February
• The index is now running below 50 - on average - over 12 months. Last 3 mo MA is 49.8, which is down from same period of 2011 when it stood at 51.8.
• Given the above profitability trend, it is likely that Manufacturing Employment will not be posting any serious growth any time soon.

Next post will update data for Services PMI.

3/3/2012: Irish Merchandise Trade 2011 (preliminary estimates)

With some delay, updating Ireland's external trade figures for merchandise trade for December 2011 data. Instead of doing a monthly update, let's take a look at the annual figures. Please keep in mind that December numbers incorporated here are preliminary estimates by the CSO. And do also remember that this is trade in goods / merchandise trade ONLY - the CSO doesn't wish to distinguish it as such in its releases, but this data does not include trade in invisibles / services.

Chart below shows exports, imports and trade balance in goods trade:

•  Imports value posted significant increase in 2011 of 5.65% yoy after a shallow rise of 0.62% in 2010. 3 year average rate of change in imports remains deeply negative, however at -5.13%, a year ago it was -9.85%.
• Exports rose 3.88% yoy, reaching the level of €92.71bn, the second highest level in history after €93.68bn in 2002. Last year, exports rose 5.26% yoy. 3 years average rise now stand at 2.31% against previous year 3 year average increase of 0.05%.
• Trade surplus rose to another historic high of €44.32bn - up 2.0% yoy - a significant accomplishment, but a slowdown in the rate of growth of 10.64% achieved in the 2010. In 2010, 3 year average rate of increases in trade surplus was 19.62% and in 2011 it was 16.64%.
• Record trade surpluses have now been recorded in 2009, 2010 and 2011, implying that the 'exports-led recovery' is now full 3-years strong without a corresponding translation into full economic recovery.

Chart below shows imports intensity of our exports - the ratio of exports to imports expressed in percentage terms.

Per chart above, our exports remain largely divorced from imports, which strongly suggests that the last 3 years (during which imports intensity was well above the historic average of 150%) the core driver for exports and trade balance performance was transfer pricing, not the real economic activity. Chart below illustrates the differential between volume of trade consistent with 9-year MA intensity and the actual volume of trade, with the MA-consistent trend stripping out some recent transfer pricing activity out of the exports figures (note, this, of course, is a highly imperfect measure, so treat the chart as being simply illustrative).

2/3/2012: Nama valuations - January 2012 update

In the previous post I looked at the latest data on residential property prices (link here). Here, let's update the Nama valuations numbers based on January 2012 property prices data.

Table below summarizes referencing of January 2012 numbers to two different dates: November 30, 2009  - the cut-off date for Nama market value assessments, and Q1 2010 - the first time Nama tried to call property market 'bottom'. So 'Loss' on nama book valuations refers to the percentage difference between the cut-off date value of properties and current value of properties according to RPPI - please note, this is an economic loss - not an actual loss to be provisioned for. Nama valuations inaccuracy index is reflection of Nama prediction - implicitly reflected in its business plans - that the property market in Ireland will bottom out in Q1 2010. Weighting to book assumes that on residential portfolio 70% of portfolio in in Apartments and 30% in houses.

Note that in the above I take account of Nama-applied Long-Term Economic Value uplift and net out the subordinated debt cushion of 5% for burden sharing (Nama loss cushion). When you think about it, we are paying six figure salaries to these boffins who are almost 30% wrong in their market predictions just 7 quarters out.