13/10/2012: Irish corporate tax haven in the news flow

Some links I collected over time on the case of irish corporate tax haven:

Here's a list of recent articles on 'Tax Haven' Ireland:

Facebook case in the UK: link here http://www.guardian.co.uk/technology/2012/oct/10/facebook-uk-taxes

Google case : link here http://www.irishcentral.com/news/Google-pays-just-10-million-Irish-tax-bill-by-routing-9-billion-profits-abroad-173020581.html

Microsoft case: link here http://www.irishtimes.com/newspaper/finance/2012/0922/1224324270335.html

EU noticing that our manufacturing is largely a 'fake' : link here http://www.irishexaminer.com/business/eu-irish-output-is-distorted-210505.html

Canada's estimated tax exhales via Ireland = CAD23.5bn in 2011, 3rd largest : link here http://www.huffingtonpost.ca/2012/08/17/tax-havens-canadian-banks_n_1797331.html

Apple case : link here http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-aims-at-low-tax-states-and-nations.html

And priceless non-Ireland related (so far…) case of HuffPo hypocrisy : link here http://order-order.com/2012/10/12/introducing-huffpo-luxembourg/

Though do keep in mind that AOL is in Ireland too.

And some more from earlier dates:

Here's Financial Secrecy Rankings from 2011 referencing Ireland's lack of transfer pricing regulations as the core driver for turning "Ireland into a source of loopholes in international tax": link here http://www.secrecyjurisdictions.com/PDF/Ireland.pdf

Forest case : link here http://www.bloomberg.com/news/2010-05-13/american-companies-dodge-60-billion-in-taxes-even-tea-party-would-condemn.html

A note on US imports from Ireland and the effects of transfer pricing: link here http://www.taxresearch.org.uk/Blog/2012/08/10/could-our-trade-deficit-be-down-to-intra-group-pricing-profit-shifting-and-transfer-mispricing-it-is-in-the-usa/

Why ireland is an EU Corporate Tax Haven post (search the page for February 21st, 2011 post) : link here http://treasureislands.org/progressive-tax-blog-reloaded/

Our own Revenue Commissioners' research on the topic : link here http://www.guardian.co.uk/business/ireland-business-blog-with-lisa-ocarroll/2011/feb/22/ireland-corporate-tax-rate-revealed?INTCMP=SRCH

The link above also mentions Boston Scientific case

The case if WPP group: link here (search the site page for "Don't be fooled by WPP's" phrase http://treasureislands.org/progressive-tax-blog-reloaded/

Updated:
Another link on the latest MNCs effective tax rates: http://www.independent.ie/business/irish/dell-pays-just-15m-tax-despite-sales-of-96bn-3276711.html

Yet more on the story of Google in Ireland:
http://www.irishtimes.com/newspaper/world/2012/1101/1224325978868.html

Updated 05/11/2012: Now it's Apple's turn: http://www.businessinsider.com/apple-tax-rate-2012-11

And more today - this one on Bain Capital: http://www.businessinsider.com/bain-capitals-dutch-tax-plan-2012-11

Updated 06/11/2012: More on Apple: http://www.independent.ie/business/irish/apple-used-ireland-to-pay-just-2pc-tax-on-nonus-profits-3285168.html

And latest idea of UK-German cooperation on cracking down on MNCs tax avoidance: http://www.guardian.co.uk/business/2012/nov/05/uk-germany-tax-loopholes-multinationals

Updated 12/11/2012: Telegraph on US trio of UK tax 'optimizers': http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/9673358/Starbucks-Amazon-and-Google-admit-using-favourable-tax-jurisdictions.html

Updated 16/11/2012: Two items both via Michael Taft:
Article on Irish corporate tax rate and budgetary policy:
http://www.thejournal.ie/readme/corporation-tax-budget-674461-Nov2012/?utm_source=shortlink

Statement from the EU Congress identifying Ireland as one of tax havens (from 2004):
http://www.gpo.gov/fdsys/pkg/CPRT-112SPRT70710/pdf/CPRT-112SPRT70710.pdf
see bottom of page 30.

Updated 18/11/2012: Dutch Sandwich Tax Scheme and google: http://arstechnica.com/business/2012/11/dutch-sandwich-with-a-side-of-tax-relief-may-soon-be-off-googles-menu/

13/10/2012: Euro area debt crisis and fake targets

My article for the Globe & Mail on euro area debt targets (link here).

13/10/2012: Big Data, Fast Data, Protected Efficiencies

A very interesting (and revealing in terms of future strategies scope) set of videos from Goldman Sachs' Co-Head of Internet Banking (link here). Basic idea is that data analytics and efficiency drive - both via innovation - are the core sources of value in years ahead.

Main factors:

• Data supply/generation - high volume of generated data is an opportunity (nothing new here, though) for 'bifurcation' of the business models that will grow and those that won't.
• Proprietary data is the king
• Internal human capital (knowledge) to capture this advantage is the king-maker
• Enablement of this data via consumer-provider links is the battle ground

Frankly speaking, these are received wisdoms.

• Capacity utilization drives efficiency
• The rate of this drive/change/disruption is massive

Worth a watch!

13/10/2012: Europe's Banks are now Global Growth Zombies

Back in 2011 the IMF was concerned that in the current crisis, the European banks will withdraw / deleverage from/out Asia Pacific and other emerging regions, thus reducing the supply of credit there. 

I thought the concern to be completely misplaced. My view is currently for accelerating maturity of the credit and financial services markets in the middle income economies and emerging markets, leading to increasing independence of these regions from funding from the West and rising self-sufficiency of internal markets. In contrast to the IMF, I posited the proposition that the deleveraging of the European banks out of Asia Pacific will (1) lead to enhanced credit activity in the region itself, as regional players exploit economies of scale from buying out European operations assets, and 2) result in the reduced supply of credit in Europe, as Asian and other middle income economies' banks focus more their efforts in internal Asia Pacific markets, while using Latin American and African markets as the platforms for deploying home-grown expertise in financing rapid growth activities.

I said this then… and the evidence is coming in now to show that I was right. Today's data from the Euromoney Credit Risk analytics shows that European banks are pulling out of the merging and middle-income markets, globally, and that "the real surprise is not the pace of retreat but the speed at which the gaps are being plugged".

Per ECR: "As [the European banks] slink home to shore up capital and preserve their dwindling reserves of credibility, they leave yawning gaps that are in most (but not all) cases quickly and happily filled by non-European rivals. …Is this, in terms of long-term global reach and relevance, curtains for Europe’s battered banks, and if it is, will anyone really miss them?"

Here's some evidence: 

• "In the first eight months of 2007, the last calendar year of growth before the financial crisis, the global syndicated loans market was dominated by European banks. Eleven filled the top 20 rankings, according to Dealogic, with five in the top 10 alone. Scroll forward five years and only two names, Barclays and Deutsche Bank, sneak into the global top 20."
• "In the first eight months of 2007, nine European lenders jostled for position at the sharp end of the pan-Asia Pacific syndicated loans markets. By 2012, just two names, HSBC and Standard Chartered, featured in the top 20, and both, it can be argued, are emerging markets specialists with their roots and futures fixed firmly in Asia."
• "The most notable national absence involves France’s leading standard bearers: the likes of BNP Paribas, Société Générale and Crédit Agricole, names that once bestrode Asia, particularly in areas like trade and project finance. In just five years, all three have disappeared almost entirely from every conceivable bank ranking."
• "In Africa, the pace of [European banks] extraction is slower but just as systematic. In Latin America, some European names are selling off the silverware piece by piece; others simply cannot appear to get out fast enough."
• In Africa's banks league tables, "just three European names sneak in, while the top-20 table is a cultural sprawl of names and geographies. Four African banks – against none in 2007 – make the rankings, along with lenders from Japan (three of them), Russia (one), and the Middle East (three). Perhaps the most compelling two names, however, squeeze quietly into the table at eighth and 15th: China Construction Bank and Industrial and Commercial Bank, Beijing’s third-largest and largest lenders by market cap respectively. This is the first time over the past five years that any Chinese lender has made it into the top 20 in the pan-African syndicated loan table, but given Beijing’s apparently unstoppable rise and the seemingly inexorable waning of Europe’s financial star, surely not the last."

But the departure of European banks is being compensated for by growth of domestic finance:

• "Europe’s mass departure has been treated with a mixture of unrestrained glee and raw opportunism across Asia; whenever a European financial asset has been on the block, buyers – mostly Asian – have flocked to buy it. …Western lenders, reckons RBS Capital Markets, sold $12 billion worth of equity stakes in emerging markets in the 24 months to end-June 2012 – and over half of that sell-off has taken place in Asia."
• "In January 2012, HSBC sold its credit card business in Thailand to Bank of Ayudhya for $115 million." 
• In May 2012, "Malaysia’s CIMB completed a deal to buy most of RBS’s Asia investment banking and cash equities business for $142 million.. giving the group instant global scale."
• Dutch ING is "seeking to shed assets as fast as it possibly can: it is currently trying to sell its €43 billion Asian funds business, it has already divested a majority stake in its Chinese life insurance joint venture, Pacific Antai, to China Construction Bank, and is now looking to exit its 26% stake in an insurance joint venture with Indian battery producer Exide Industries."
• ANZ is absorbing its $550 million acquisition of the bulk of RBS’s Asia retail banking assets, and the Australian banking group "is hungry for more deals."

European banks' deleveraging – lasting from mid-2009 to the present day – has been led "… by what critics called short-sighted regulators in Brussels, Paris, Frankfurt and London desperate to boost liquidity to avoid a repeat of the financial crisis":

• Basel III rules insist on tier-one capital levels of at least 9%. 
• Political pressure is "brought to bear on, say, French banks by French politicians to ensure that French banks, first and foremost, lend French money to French clients. The same reverse-protectionism move is being played out by lenders in the UK, Belgium, Spain and the Netherlands. Pressures were put by the UK government on nationalized RBS and Lloyds to lend more to British companies, while Belgium’s KBC, which has received state aid, has sold non-core assets to focus more on its home market. Spanish Santander and other big banks are buying Spanish government bonds, according to dealers, while ING’s biggest exposure is the Netherlands, some analysts say."

The contrasting story is now with the US banks, with little evidence of these aiming to deleverage by reducing their emerging markets exposures:

• Citi "remains a top 10 player in the syndicated loans market in the first eight months of 2012 in both Latin America and Asia Pacific, just as it was in the same time period five years ago, while retaining its number one position in Africa syndicated loans."
• "JPMorgan, Citi and Bank of America Merrill Lynch filled out the top three spots in global syndicated loans for the first eight months of 2007; fast forward five years and those same players now rank first, second and fourth, separated only by Japan’s Mizuho."
• "Non-US developed-world banks are also boosting their presence in key markets at Europe’s expense."

Asia Pacific story is now also playing out in Eastern Europe and Latin America:

• "A few non-European lenders are pushing into the eastern half of Europe in search of bargains" 
• Russian Sberbank "…snapped up Volksbank International, the CEE and central Asia division of Austria-based Oesterreichische Volksbanken, for €505 million ($710 million)." 
• "… in 2011, SocGen sold its booming consumer finance, ProstoKredit, to Eurasian Bank, owned by three Kazakh and Russia oligarchs."
• Latin America "…is a region crammed with outperforming economies as well as banking groups transformed, in less than a decade, from lepers to would-be global leaders, notably the likes of Itaú Unibanco and BTG Pactual, both Brazilian, and Davivienda and Grupo de Inversiones Suramericana (Grupo Sura), both Colombian. All are ramping up their presence around Latin America, mostly at the expense of retrenching European names."
• "RBS was the first to cut and run, exiting Brazil last year, followed in short order by its withdrawal from Chile, Venezuela, Colombia and Argentina."
• Grupo Sura in 2011 completed a deal "to buy the entire Latin American operations of ING, in another blanket deal."
• HSBC sold its operations in Costa Rica, El Salvador and Honduras in September last year to Davivienda for a shade over $800 million. 
• "Spain’s Santander, one of Latin America’s biggest banking groups… shed its operations in Colombia, where it was a peripheral player, pocketing $1.225 billion."
• "In September, Mexico’s Grupo Financiero Banorte (GFB) announced it was formally running the rule over pension fund assets owned by Spanish lender BBVA in Chile, Colombia, Mexico and Peru. BBVA is open, even eager, for a sale; in a statement to the Mexican Stock Exchange, GFB announced its intention to explore “opportunities to generate greater scale in the pension and retirement fund business”. BBVA manages $70 billion-worth of assets in the four countries, generating a combined profit of $300 million."
• "Again, deleveraging in Latin America appears to be the sole purview of twitchy European lenders. Scotiabank is quietly gaining strength in Latin America: the Canadian lender shelled out $1 billion last year to buy a majority stake in Colombia’s Banco Colpatria, its 20th acquisition across the region in the past six years. Citi remains solid across the region, while UBS, an investment bank more global than Swiss by nature, pumped $500 million into Grupo Sura before its ING raid."

The core problem with this is that quick deleveraging out of growth-focused regions spells diminished prospects for future profits growth for European banks and loss of access to rich deposits rapidly growing on foot of rising incomes in the regions outside sick Europe. As I warned a year ago, contrasting the IMF alarmist views, Asia, Africa, Latin America and Eastern Europe will probably be fine in the short run as European banks run for the exit. In the long run, these regions' banking systems are likely to be strengthened by the current processes. Instead, the real risk is for the European lenders who are likely to be relegated to the back water of credit growth - the stagnant pool of the euro area economies. 

Thus, the real question about the future is not 'What if Europe's banks stop lending in Asia?' (as posited by the IMF), but rather 'What if the Asian banks won't care for lending in Europe?'

12/10/2012: Irish Savings Myths

Last night at the Dublin Chamber dinner, Taoiseach Enda Kenny made a rather common, but egregious in its nature statement that Ireland has the highest savings rate in the OECD at 12% GDP. Speaking before him, the President of the Dublin Chamber, Patrick Coveney, made a similar statement, but referenced 14% savings rate. Both speakers were identifying a high savings rate as being an impediment to consumer spending and recovery.

In addition to the above, the Chambers President made another startling juxtaposition. In his speech he said that:

1. Savings are too high and we need to 'do something' to reduce these;
2. Investment is too low
3. In the future, investment (via bank lending) will remain low.

Let me deal first with the last set of claims. In the Irish economy, savings are used to pay down debts (thus supporting deleveraging of the households and companies, and preventing collapse of our banks) and invest in economic activity. Reducing the debt-repayment component of savings would require a default/restructuring of private debts. The remainder of our savings goes to finance investment (direct equity & direct lending to businesses) and deposits in the banks (which in turn normally finance lending). So which part of our savings would Patrick Coveney like to cut? The banks bit (precipitating collapse of the banks) or the investment bit (precipitating further decline in investment)?

I am not even going to ask Mr Coveney as to what he might suggest that the Government should do to cut our savings rate. Impose huge wealth taxes, or go straight to a large-scale expropriations of 'excessive' savings? Both will do wonders to Ireland's reputation abroad, let alone to the dynamics of future investment at home.

Instead, lets move on to the myths both speakers were keen on repeating - the myths of our allegedly massively high savings rates. All of the data below is taken from the IMF WEO database.

Let us rank Ireland's gross savings rate compared to all other advanced economies (higher rank means lower savings rate):

Contrary to what our Taoiseach and Mr Coveney were saying, Ireland's savings rate in 2010-2014 is estimated by the IMF to be... the 5th lowest in the sample of 33 advanced economies around the world. May be it is the highest in the Euro zone? Oh, no - it is actually the fourth lowest in the Euro zone.

So what about this year then? Oh, that would be exactly the same as for the 2010-2014 average:

But wait, you might say, surely we are saving as an economy more today than in the past? Oops...

As above shows, during the 1980-2011 period, average savings rate in Ireland stood at 18.63% of GDP. In 2012 it will be 10.82% of GDP. In 2011 it was 10.59%, in 2010 11.53% and so on. Not even close to the historical average! And not close to our peers all of whom have much higher rates of savings: Israel at 18.94%, Finland at 19.84%, Belgium at 21.38%, Austria at 25.23%, Netherlands and Hong Kong at 26.29%, Luxembourg at 26.57%, and so on.

And yes, Mr Coveney, savings and investment are linked in Ireland:

And the gap between savings and investment in Ireland - explained in part by the banks claims on our savings via loans repayments:

... well that gap is currently at the advanced economies average and it was below that average during the crisis so far. 

In other words, there is no 'excess' savings in Ireland. As this economy continues to struggle with the banks debts (ah, the Chambers dinner was sponsored by one of the Pillar Banks) our savings-investment gap is forecast to rise above the advanced economies average in 2013-2017. That is the illustration of the Taoiseach's famous dictum that he won't have 'defaulter' written on his forehead. So clean forehead for our Taoiseach means no investment for businesses. Simples...

10/10/2012: Irish Real Economic Debt - Busting Records

Last night I came across the latest data from the IMF on the overall levels of indebtedness and leverage across a number of countries. Here's the original data:

Much can be taken out of the above. For the purpose of discussion below, I define real economic debt as a sum of household, non-financial corporate and government debts, excluding financial firms' debts. This real economic debt is liability of the Irish economy: households, private enterprises and public sector providers of goods and services.

First up, total debt levels:

Ireland's total real economic debt runs at a staggering 524% of our GDP and 650% of our GNP. In fact, I use 24% GDP/GNP gap as a basis for adjustment which is significantly less than the current gap, but is consistent with 2011-2012 (to-date) average. Put into perspective:

• Our economy's overall indebtedness is 1.73 time higher than the euro area levels in GDP terms and if GNP is used as a basis it is 2.14 times higher
• Our real economic debt is 14.4% ahead of that of Japan (second most indebted country on the list) if GDP is used and is 41.9% ahead of Japanese debt if GNP is used.

Our real economic debt can be decomposed into the following three components contributions:

In other words, the above chart clearly shows that Ireland's core debt overhang arises not from the Government finances, but from accumulation of liabilities on the side of the companies. More than that:

• Ireland's Government debt levels are 25.5% ahead of the euro area
• Ireland's Household debt levels are 64.8% above the euro area
• Ireland's corporate debt levels are at 209% of the euro area levels.

Thus, with the Government policy firmly focused on taxing households to save own balancesheet, we have a perverse situation that the economy is dealing with debt overhang in Government debt that is more benign than the debt overhangs in the sectors the Government is obliterating. Households faced with increased taxation to pay for Government debts and deficits implies lower spending on goods and services and lower ability to repay household debt. Thus higher taxes on households (direct and indirect, including aggressive extraction of income via semi-states' charges) imply growing burden of the debt overhang in the private sectors (firms and households).

Adding financial debts to the overall real economic debt in the economy forces Ireland into a truly unprecedented position vis-a-vis other countries in the sample. (Note - adjustment for IFSC is mine).

Using the bounds for debt of 90% (consistent with upper range for Checchetti, Mohanty and Zampolli (2011) and Reinhart, Reinhart & Rogoff (2012)), the levels of cumulated real economy debts that are consistent with reducing future long-term potential growth in the economy are taken to be 270% of GDP. Hence:

and

In the above, the larger the size of the bubble, the greater is the drag on future economic growth from debt. The further to the right on the chart the bubble is located, the greater is the problem associated with Government debt (as opposed to other forms of debt). What the above shows is that Ireland's debt crisis is truly unique in size, but it also shows that the most acute crisis is not in the Government debt, but in private sectors debt.

Now, at 4.5% per annum cost of funding overall debt, irish economy interest rate bill on the above levels of real economic indebtedness runs at ca 29.2% of our GNP. Do the comparative here - interest rate bill equivalent to the total annual output of the Irish Industry (that's right - all of our Industrial output in 2011 amounted to less than 29.3% of our GNP. This is deemed to be 'long-term sustainable'... right...


Note: In my presentation at a private dinner event yesterday I referenced by earlier estimate of the total economic debt in Ireland at 420% of GDP. My 2011 estimate was ca 400% GDP. These figures have been published by me in the Sunday Times and also correspond closely to the 2010 figures cited by Minister Noonan in the Dail and made public here on this blog. They also were confirmed by Peter Mathews TD. My estimates were based on publicly available data which is less complete than data available to the IMF.

7/10/2012: VTB and Sberbank relative position vis peers

Another interesting point from the Goldman note on euro area banks, relating to Russian banks - see chart below (you'll need to click to enlarge it):

Note that per my latest recent assessment of Russian equity markets, both VTB and Sberbank are relatively undervalued.

Original note is linked here.

7/10/2012: Goldman on Euro Area banks

Some very interesting stats on the Euro Area (comparatives) banking sector from the recent (October 4) research note from the Goldman Sachs (link here). Here are some bits:

In a recent (October 4) presentation to retail investors in Cork I was speaking about the mismatch in non-financial corporations funding sources between the US and Euro Area. My conclusion was that in the medium term (2013-2015) Euro Area corporates will be forced to increase issuance of corporate bonds since their preferred source of funding - banks lending - is going to stay subdued on supply side, while the equity issuance cannot absorb simultaneous deleveraging of the banking sector, and demand for increased equity from the corporate sector, especially as Governments across the EU are going into 'tax-em-to-hell' mode when it comes to potential investors.


Here are two charts from GS note on the same:

And where are banks largest, dominant players in the economy? Why, in usual suspects...

Now, what's the problem with the above chart? Oh, let's see: Swiss and UK bankers are bankers to the world, with more exposures to assets outside their countries than inside. Irish banks listed include some IFSC banks, but... adjusting for that and adjusting for GNP/GDP gap, Irish figure is as follows:

• Covered banks: 295% of GNP as of Q2 2012 (using 2011 GNP)
• Total Assets of Domestic Group of banks as of August 2012 are 447% of 2011 GNP. Of these, 318% are purely assets relating to Irish residents.

Thus, if we are to control for the international exposures of the banks, the same relative position for Ireland is most likely to be maintained as in the chart, albeit the numbers will be smaller across all banking systems. And now think of adjusting these for the quality of assets held... and weep.


And here's a note for Michael Noonan and his friends at Irish banks: this time it is NOT going to be much different:

Do note the above is in nominal Yen, which is kinda telling - Japanese banks have not grown since 1990, inflation-adjusted, through probably 2009-2010. And that with Japanese printing cash and piling up public debt like there is no tomorrow between 1990 and today. What hope is there for the return of lending and profitability in Irish banking ca 2014 that the Central Bank and the Government and the banks have been betting on throughout their disastrous disaster management practices 2008-present?


Lastly, here are two tables neatly summarizing the epic fiasco of European (and Irish - see second table) banking:

Do note prominent positioning of Ireland's zombies, right there, with Tier Last Marfin, B of Cyprus, and Dexia...


Now for a quote... but wait a second first a preliminary set up: Irish Government claims that new regulatory regime will be a departure from the past for Irish banking. The same Government claims that too much competition in Irish banking was contributing to regulatory failures. So a duopoly of BofI + AIB zombies should foster more effective regulatory regime, right? Oh... Goldman on that (italics mine):

"At the other end of the spectrum, countries with central banks as their supervisor have generally done better, the two exceptions being the Netherlands and Ireland (where supervisors fared badly owing to the huge size of the banks that these countries had relative to their GDP – the sheer size of these made it much too difficult to supervise these, ‘too big to save’ banks in these cases)." So, tell me - if having TBTF banks = "much too difficult to supervise" banking system, how will having Duopoly banking system help supervisory effectiveness? Answer: it will hinder such effectiveness. Instead of being captive to a bunch of banks, Irish regulatory regime will be captive to two banks - incidentally, the very same ones that led capture of regulators back in 1990s-2000s.

Let's stop the reading here...


Update: In a fair criticism of the GS report, it ignores Solvency II implications, although does cover Basel III and Dodd-Frank. Solvency II omission was pointed out by the @creditplumber / David McKibbin. 

6/10/2012: Irish Industrial Production - August 2012

Per CSO:

• Production for Manufacturing Industries for August 2012 was 0.7% lower than in July 2012. On an annual basis production for August 2012 increased by 0.2% when compared with August 2011.
• The seasonally adjusted volume of industrial production for Manufacturing Industries for the three month period June 2012 to August 2012 was 1.8% higher than in the preceding three month period.
• The “Modern” Sector, comprising a number of high-technology and chemical sectors, showed a monthly increase in production for August 2012 of 5.1% and there was a decrease of 0.9% in the “Traditional” Sector.
• The seasonally adjusted industrial turnover index for Manufacturing Industries decreased by 0.1% in August 2012 when compared with July 2012. On an annual basis turnover increased by 0.2% when compared with August 2011.

Here are some more detailed stats and dynamics:

• Volume of total Manufacturing output was down 3.43% in August compared to same month in 2007 (pre-crisis). 3mo average through August 2012 was up 1.78% on 3mo average through May 2012 and 3.75% ahead of the 3mo average through August 2011.
• August reading for Manufacturing marks the first m/m decline since February 2012.
• Volume of production in All Industries in August 2012 was down 4.68% on same period in 2007. 3mo average through August is 1.75% ahead of 3mo average through May and is 2.72% ahead of 3mo average through August 2011.
• Both Manufacturing and All Industries indicate improved 3mo averages as consistent with modest improvement in output dynamics.
• Volume of activity in Modern Sectors posted the highest reading since October 2011 and the second highest reading since the beginning of comparable series (January 2006). 3mo average through August 2012 is now 1.26% ahead of the 3mo average reading through May 2012 and is 6.59% ahead of the 3mo average through August 2011. Very strong performance in the sector.
• In Traditional Sectors, however, volume of activity fell 14.17% y/y and is now down 20.05% on August 2007 level of activity. 3mo average through August 2012 is down 1.78% on 3mo average through May and is down 4.34% on 3mo average through August 2011.

Chart to illustrate:

• As the result of the above trends, the gap between indices measuring the Volume of production in Modern and Traditional sectors has now widened to 51.5 - the highest reading since the all time record of 56.6 in October 2011.

It is worth noting that Traditional manufacturing sectors are usually associated with higher labour intensity than Modern sectors, implying the disconnection between improvements in overall Manufacturing index (volume) activity and the likelihood of jobs creation acceleration.

Turnover indices:

• Manufacturing sector turnover dipped marginally in August (-0.1% m/m) but is ahead, also marginally, on the annual basis (+0.19%). The index is down 6.9% on August 2007. 3mo average through August 2012 is 5.28% ahead of the 3mo average through May 2012 and is 3.29% ahead of the 3mo average through August 2011.

Lastly, New Orders index:

• New Orders index hit the highest reading in 2012 in August, up 3.4% y/y and 1.16% m/m, although the activity is still down 6.8% on August 2007. 3mo average through August 2012 is 5.5% ahead of 3mo average through May 2012 and 3.9% ahead of the 3mo average through August 2011.

The overall activity in the industrial production is clearly stabilizing at the recovery levels, but as noted above this is solely driven by the activity in Modern sectors.

6/10/2012: Correlation v Causation

An excellent, albeit very reader-friendly (yes, that's a draw back as it trades depth) discussion about the relationship between correlation and causality (link). H/T to Markus Sagebiel ( @msgbi )

6/10/2012: US Payroll Data for September 2012

So far, 2012 has been a volatile year for jobs creation in the US and the latest figures released yesterday confirm this volatility, albeit this time to the pleasant side. Expansion of NF payroll by 114,000 in September came in slightly below expectations, but alongside trend. More significant reading was accorded to the upward revisions for previous level of employment. NF payrolls for July went up from 141,000 to 181,000 and for August from 96,000 to 142,000 - a cumulated increase of 86,000 on previous estimates. However, private sector payrolls rose disappointing 104,000 some 30% below the consensus and up only slightly on 97,000 increase in August. Meanwhile hourly earnings were up 0.3% outstripping both expectations and August flat performance (+0.0%). Average weekly hours worked went up by statistically insignificant 0.1 hours to 34.5 hours.

On the optimism deflating side of things, we have Q1 average increases in NFP of 226,000, followed by Q2 increases in NFP of 67,000. Now we have Q3 at 145,700 average which is 146,200 monthly average. In other words, despite massive revisions, Q3 is not spectacular when it comes to jobs creation.

Headline unemployment figure showed most dramatic change in yesterday's report declining from 8.1% in August to 7.8% in September and bringing US unemployment to the lowest rate since January 2009. This accelerates decline of 0.2% in unemployment rate recorded in August. Good news - labour market participation rate rose from 63.5% in August to 63.6% in September. Which means more people were finding jobs. Alas, back in 2010-2011 the participation rate stood at 64.4% on average, ahead of the current level. And the number of those in employment rose by 873,000 against the drop of those unemployed by 456,000. But, again, that silver lining contains a sizable cloud over it: employment to population ratio rose to just around 58.5%, which is only slightly ahead of 58.4 in 2010-2011 and well behind 62.7% in 2003-2007 and 60.8% in 2008-2009.

However, the decline in unemployment is really an over-exaggeration of the actual labour market performance for a number of reasons:

• A number of commentators correctly pointed that household survey - the basis for calculating unemployment rate - has been returning very volatile readings.
• Ending of the emergency unemployment benefits during the summer also most likely contributed to pushing people into employment (something that would be consistent with increases in employment being predominantly in lower wages and part-time jobs - see below). It is worth remembering that emergency extensions to benefits were cut fully back in May. As the result, unemployment benefits extensions dropped by some 865,000 since May.
• Part-time involuntary employment accounts for 3/4 of the total gains in employment over June-September 2012 with numbers of part-time workers who would like to have a full-time job, but can't find one rising 582,000. Overall, U6 unemployment rate (those unemployed and underemployed) remained at 14.7% in September, showing that virtually all gains in the labour market in the US are low quality. And further confirming this, the percentage of long-term unemployed (in excess of 6 months) in total unemployment rose to 40.1% in September from 40.0% a month before.

See the chart (via Citi Research):

So to the Obama Camp optimists out there - the trend in jobs improvements is exceptionally weak, and at a risk of being derailed completely once electioneering-induced pause in fiscal adjustments is over comes January 2013. And to Mitt Romney Camp contrarians out there - the trend in jobs improvements is still present, if only in a sense of absent deterioration. 

Glass half-full and half-empty...


Update:  and here is an excellent post from the Sober Look blog on the sub-trends in US consumer credit 'growth'...

6/10/2012: Euro area bonds supply calendar for October 2012

Morgan Stanley October bonds supply calendar for euro zone sovereign bonds:

 

And summary of volumes for redemptions, coupons and new issuance:

Ireland's volumes above refer to coupon payments only.