1/11/2013: Irish Consumer Confidence: Handle with Caution...

Having written just yesterday about Retail Sales for September 2013 (see here: http://trueeconomics.blogspot.ie/2013/10/31102013-i-am-sorry-but-retail-sales.html) I can now update the Consumer Confidence reading to October.

In October, Consumer Confidence indicator rose to 76.2 from 73.1 in September. This is the 10th highest reading for the index since April 2005 and the highest in 76 months since June 2007. If it were indicative of anything, we are sitting on a cusp of a consumer demand boom.

However, problem is that Consumer Confidence has a negative historical correlation with Retail Sales over the period of current crisis: correlation between Consumer Confidence and Value of Retail Sales since June 2008 is -0.663 and with Volume of Retail Sales it is -0.599. In other words, according to data, higher consumer confidence has been associated with lower retail sales (consumer demand).

Here's an illustration, updated to October for Consumer Confidence figure...

So caution, please, with interpreting Consumer Confidence.

1/11/2013: Decent News on Live Register Front: October 2013

Live Register numbers for October released yesterday are pretty good, for a change. 

On a seasonally-adjusted basis, overall official Live Register counts declined to 409,900 from 413,600 in September. Seasonally-adjusted LR is now down 5.60% y/y - an improvement on decline of 4.9% recorded back in September.

3mo MA also is down 5.03% year on year, and 2.2% lower on 3mo through July 2013. 

So decent headline readings, consistent with continued trends working through LR overall:

1) Outflows due to new jobs creation

2) Outflows due to emigration and benefits expirations

Level changes: m/m down 3,700 and y/y down 24,300. 

Compared with Q1 2011 average - the last period prior to the current Government coming into office, Live Register is down 3.8% in the last 3 months through October 2013.

Two charts above also show Live Register with State Training Programmes participation added to it (LR+STPP). This broader measure of LR currently stands at 485,850 in October (I use September figure for STPPs as this is reported with one month lag). Assuming this holds, LR+STPP numbers are now 5.8% below where they were in October 2012 (note, September STPP figure more likely underestimates the October numbers, as there is very strong volatility and seasonal increases in September-November). 

This contrast with 3.7% decrease in LR+STPP recorded in September. Now, again - keep in mind that September numbers are the true comparative, as they are reflective of the recorded levels of STPPs. 

Back to october figures. The trend for LR+STPP is now to the downside when we strip out some of the monthly volatility. 3mo MA for LR+STPP currently runs at 1.35% lower than 3mo MA through July 2013 and is down 4.2% y/y. This confirms the decline of 2.4% recorded in LR+STPP y/y basis for the 3 months through July 2013.

Current 3mo MA is 4.7% below Q1 2011 reading for LR+STPP.

Broadly-speaking, the numbers are encouraging.

Another interesting trend in the LR participation by the under-25 years of age: this is down massive 10.4% y/y in October and was down 10.3% in September. On 3mo MA basis, the figures are down 10.4% y/y and are down 3.4% on previous 3mo MA through July 2013. I wonder how much of these declines is due to cuts to benefits and expirations of benefits and younger people removing themselves out of the labour force.

Finally, Casual and Part-time Workers on LR have fallen 5.1% y/y in October and were down 3.3% in September. On 3mo MA basis, the figures are down 5.7% on previous 3mo period through July, and are down 3.6% y/y.

Summary: overall we have encouraging changes in the LR. More analysis is needed to decompose these into jobs creation numbers as opposed to benefits expirations and emigration. More current data is needed on State Training Programmes participation (this will be available for October when November LR is released). A summary of changes is shown in the chart below:

Updated: Revealing some of the mysteries of 'improving' Live Register, here's an article from The Examiner: http://www.irishexaminer.com/budget/news/reality-behind-live-register-stats-246183.html

31/10/2013: I am sorry, but Retail Sales did not get any better in September, again...

With some lag, time to update Irish Retail Sales stats to September data. Instead of going over the usual details of the dynamics, let's take a broader look at what is happening in the sector:

Starting with a chart:

As above clearly shows, both the Value and the Volume of core retail sales are going nowhere - the series are bouncing along the bottom, switching direction almost on month basis. This suggests that

1. Consumers are not going to the shops anymore than they absolutely need to; and
2. Consumers are running out of money to spend on things they need to purchase, while retailers are running out of margins to cut prices.

Of course, you would also notice in the above chart the absolutely bonkers behaviour of Consumer Confidence indicator. And you are right: as chart below clearly highlights, the Consumer Confidence has completely detached itself from Retail Sector realities:

Timing the start of the crisis to late the start of 2009 (if we take the start at mid-2008 things are even uglier for the Consumer Confidence), we have:

• Consumer confidence rising along an upward trend;
• Retail Sales in Volume and Value falling along declining trend;
• Consumer confidence being more volatile than Volume and Value indicators for Retail Sales

This implies that Consumers are claiming that which they do not practice. Why? I have no idea. Patriotic duty to be optimistic? By Consumer Confidence recent readings, we should observe retail sales activity around late 2006-2007 levels. Ooops... Value of Retail Sales is now below where they were back at the start of the series in 2005. Volume of Retail Sales is now around late 2005.

The same applies to more smooth 3mo MA series:

There are no statistically or economically meaningful links between 3mo MA for Consumer Confidence and either Value or Volume of Retail Sales. Worse, year on year, the disconnect between the series has grown wider for both, with the widening being steeper for Value index. Again, this potentially indicates that margins in the retail sales have been wiped out and that this is not enough to get consumers spending again.

Which raises one serious question: local authorities are planning to jack up their rates in 2014. How will retail businesses afford these when they are trading in the above conditions?

As you know, I run my own index of Retail Sector Activity - RSAI - and updating this to September shows the flatlining of the trend for Retail Sector activity overall. All in, we are now in 75 months-long period of declining or flat retail sales:

You can turn the numbers upside down and compute them sideways. You can listen to the Government spokespersons telling us about improving consumer confidence until the Halloween pyres consume the last tractor tyre. You can believe that we are in a turnaround.

And I wish I could do so alongside you... but the above figures are not showing this. Perhaps we can add 'not yet' to that statement to keep some hope alive.

31/10/2013: IBF data on Mortgages Approvals: September 2013

Having just covered data on Residential Property Prices here (http://trueeconomics.blogspot.ie/2013/10/31102013-irish-residential-property.html), time to also update the data from the IBF on Irish mortgages approvals.

Excluding mortgages top-ups, lending for house purchases improved in September, with total of 1,544 new mortgages approved, up 10.4% y/y. Cumulative 3mo issuance of mortgages is now up 11.5% on previous quarter and 13.4% up y/y.

Average mortgage approved, however, stood at EUR174,302 in September, down 4.78% y/y. 3mo average mortgage approved was down 0.12% on previous quarter and down 3.69% y/y.

Year-to-date (Q1-Q3) cumulative number of mortgages approved rose 7.5% y/y while average mortgage approved by value fell 2.49%.

As the result of the above, total value of mortgages approved stood at EUR269 million in September, up 5.08% y/y. Q1-Q3 volume of mortgages approved rose 5.12% y on same period 2012.

So overall, reasonable gains, but off extremely low levels.

31/10/2013: Irish Residential Property Prices: September 2013

Updating the Residential Property Price Index data from CSO released earlier this week, here are the core highlights for September 2013:

• All country RPPI rose to 68.2 in September from 67 in August, marking sixth consecutive month of rises The index is now up 3.65% y/y (in August it was up 2.76% y/y).
• 3mo cumulated change in RPPI is 3.96% and 6mo cumulated change is 6.4%. 6mo average rise is 0.66%.
• Nama valuations (with 10% cushion on LTEV uplift and risk sharing) are now 33.97% off the mark.
• Relative to peak, index now stands at -47.74% and relative to absolute minimum it is at +6.4%.

For Houses RPPI:

• Index rose to 71.0 in September from 69.8 in August and posted a 3.35% rise y/y.
• 3mo cumulated gains are at 4.11% and 6mo cumulated gains are at 6.29%. Average over 6 months monthly increase is 0.69%.
• Relative to peak, the index now stands at -46.21% and relative to absolute minimum it is at +6.29%.
• September marked sixth consecutive month of rises in house prices.

For Apartments:

• Index rose to 50.9 in September from 50.0 in August and posted a 8.53% rise y/y. 
• 3mo cumulated gains are at 1.6% and 6mo cumulated gains are at 6.26%. Average over 6 months monthly decrease is -0.41%.
• Relative to peak, the index now stands at -58.92% and relative to absolute minimum it is at +11.38%.
• September marked second consecutive month of rises in apartments prices.

Dublin RPPI:

• Index rose to 65.9 in September from 63.4 in August and posted a massive 12.27% rise y/y.
• 3mo cumulated gains are at 9.47% and 6mo cumulated gains are at 12.07%. Average over 6 months monthly increase is 1.13%.
• Relative to peak, the index now stands at -51.0% and relative to absolute minimum it is at +15.01%.
• September marked sixth consecutive month of rises in Dublin property prices.

Conclusions:

• Twin convergence toward long-term equilibrium prices is now evident in Dublin markets (upward price pressures) and National ex-Dublin prices (downward pressures). 
• The core question is when will Dublin prices overshoot their long-run trend and moderate again?
• Another core question is what the fundamentals determined price levels are for Dublin and for the rest of the country?
• I have no answers to the above questions and anyone who says they do is most likely talking porkies.
• What I do know is that there are plenty of risks to the downside and headwinds working through the economy. These include: mortgages arrears, income effects of tax and charges changes in Budget 2014, banks rates on existent mortgages; and new mortgages supply and pricing. 
• So far, my gut feeling is that we are still on a sustainable upward trend in Dublin and on moderating negative trend in the rest of the country. 

31/10/2013: Eurocoin: Weak Growth Remains Weak: October 2013

In the previous post (http://trueeconomics.blogspot.com/2013/10/31102013-nairu-or-ndru-euro-area.html?spref=tw) I covered the latest unemployment and inflation stats for the Euro area in the context of economic growth conditions. Now, let's update the data for Euro area leading growth indicator, eurocoin:

Eurocoin rose in October 2013 to 0.20 from 0.12 in September, marking the second consecutive month of the indicator reading above zero. However, eurocoin failed to reach statistically significant levels once again. This implies that the recovery is weak, and subject to serious risks.

In line with the indicator increase, growth forecast also improved from 0.1% for Q3 2013 to 0.18% for the start of Q4 2013.

In relation to inflationary pressure, eurocoin is now signalling expansion that is not sustained by underlying domestic activities:

The above conjecture is supported by analysis of eurocoin core components, showing that the latest improvements came from equity markets indicators (as in September) and also from improved industrial production and exports. Industrial production gains were in turn driven primarily by Germany, while composite PMIs remained generally in the negative territory. Meanwhile, consumer sentiment deteriorated, including in Germany (though it stayed in the positive territory there). 

On ECB move potential see: http://trueeconomics.blogspot.ie/2013/10/31102013-nairu-or-ndru-euro-area.html

31/10/2013: NAIRU or NDRU? Euro Area Inflation Hits 0.7% in October

So Euro area unemployment rate remained stuck at 12.2% in September, same as in August 2013 and up on 11.6% in September 2012. 18,451,000 Euro area residents were unemployed back in September 2012 and this rose to 19,447,000 a year later. Meanwhile, in the US, unemployment rolls fell from 12,093,000 to 11,254,000 and the rate dipped from 7.8% to 7.2%.

With inflation (HICP) coming at 0.7% in October, so we are now no longer in the Non-Accelerating Inflation Rate of Unemployment (NAIRU) environment, but rather closing on what I would call a Near-Deflationary Rate of Unemployment (NDRU)... welcome to the madness of European econo-politics, where the Central Bank is powerless to do much to re-inflate the economy and fiscal authorities are powerless to restart growth, while households and companies struggle under the weights of debts.

Two charts:

Leading growth indicator Eurocoin (see more detailed analysis in the next blogpost) has improved somewhat in October, but monetary policy remains stuck in zero-bound, zero-power corner. And ditto for inflationary signals:

We are now at the lowest rate since November 2009 when it comes to HICP.

Good news, ECB can now easily move to 0.25% rate... but will it? Ask Angela...

30/10/2013: Desperate? Just Check Out Italy's Latest Thoughts on Bonds...

Just when you think they (the Governments) have run out of creative ways to load risks onto taxpayers in order to boost sales of debt to fund own empires... here comes Italy with new twist on financial engineering in sovereign debt space: http://www.reuters.com/article/2013/10/21/italy-derivatives-guarantees-idUSI6N0HU01420131021

Desperate? You bet What will they think up next?..

H/T to @greentak

30/10/2013: Welcome, Dublin Web Summit... Here Two Questions to Think About...

On the first night of Dublin Web Summit 2013, here's my bit of thinking:

For executives and corporate leaders:

For policy makers: when will you stop pretending that you understand innovation?

Government after government around the world is harping on about 'innovation-driven growth' 'knowledge economy' and 'creative economy'. Government after government charges human capital - the main generator of value added activity in all of these economies - a 50%+ tax rate, so it can subsidise building & construction, property investments, roads and transport, farming and forestry, fishing and tourism - the parts of the economy that are anything but 'knowledge' or 'creative' or 'innovation-centric'. In fact, the subsidies are flowing to these sectors irrespective of whether their recipients in any way shape or form engage in or support knowledge generation or commercialisation, creativity deployment and embedding into their processes and outputs, or innovation-driven transformation of their sectors/firms/services or outputs.

Give a thought to the above two questions, folks, while inhaling the airs of the Web Summit. And keep remembering: you are in the city where human capital is being taxed at 55%+ to fund services not available to the holders of that human capital. And corporate capital is taxed at 0%-12.5%. Where the Government has just passed a new Budget hiking indirect taxes on human capital (amongst other) to fund subsidised home improvements for small builders.

Welcome to the Creative Knowledge Innovation Ireland... did you declare your human capital at the customs?..

29/10/2013: Employment & GVA: Impact of the Crisis on European Cities

Via BusinessInsider: http://www.businessinsider.com/europes-cities-in-one-chart-2013-10 Here's a chart showing the impact of the crisis on major cities:

Notice the position of Dublin as the second or third most adversely impacted city. And notice our position in terms of GVA (Gross Value Added) growth. We also represent the worst-impacted small city in the sample. Stripping out the positive effects of growth in MNCs-driven services exports and superficial transfer pricing boom delivered by the likes of Amazon, Google et al, we would be much closer to Athens in terms of overall impact.

28/10/2013: Back in the News: Double-Irish (non)Tax Haven

Starting the week on the right footing... Ireland's tax regime back in the news:

• Bloomberg inforgraphic showing clearly the disconnect between our fabulously 'active' corporate profitability and our anaemically limp jobs creation amongst Ireland-based US MNCs: http://www.bloomberg.com/infographics/2013-10-28/u-s-profits-in-ireland-pile-up.html
• More Bloomberg reporting: an extensive profiling of the lead tax specialist behind Ireland's infamous double-Irish: http://www.bloomberg.com/news/2013-10-28/man-making-ireland-tax-avoidance-hub-globally-proves-local-hero.html

And note: this is not tax haven, although it is, according to the specialist behind it, going away... cause it is not a tax haven, of course...

You can track series of articles featuring Irish tax regime in international media starting from this link:

http://trueeconomics.blogspot.ie/2013/10/24102013-irish-tax-regime-hits-news.html

27/10/2013: Irish CDS spreads: a reason to smile for a change...

It might be disheartening sometimes (often) to read the newsflow involving Irish economy. But occasionally, there are some really worthy decent news... Here's an example: 12 months difference in CDS spreads:

First Q3 2012:

Now, Q3 2013:

That's a huge change... even though we are still far from where we want to be, the change is impressive.