3/12/2014: Russia Services & Composite PMIs: November

Pretty tough news for Russian Services and Composite PMIs for November.

As a reminder, Manufacturing PMI for November posted a nice surprise, rising to 51.7 in November from 50.3 in October. However, as I noted in the analysis of Manufacturing figures here: http://trueeconomics.blogspot.ie/2014/12/1122014-russia-manufacturing-pmi.html the devil was always in the services PMI data.

Services PMI came in significantly to the downside. November Services PMI reading fell to an abysmal 44.5 from already poor 47.4, marking second month of contraction, and a sharpest rate of contraction since May 2009.

3mo MA is now at 47.5, and 3mo MA for the period through August is at 49.9, which means 6 months of continued declines (on average) in the sector activity. In 3mo through November 2013, the index averaged 52.3.

Composite PMI, driven by Services downside, fell off the cliff from 49.1 in October to 47.6 in November, marking an outright statistically significant contraction. 3mo average through November 2014 is at 49.2 against 3mo average through August at 50.8 and 3mo average through November 2013 at 52.2.

All three PMIs taken together show continued strong trend to the downside, a trend that was clearly established in Q4 2012 first on foot of structural weaknesses, further reinforced by sanctions and counter-sanctions, plus now being strongly propelled by the drop in global energy prices. Additional driver to the downside is the global environment that currently strongly disfavours all BRICs (here is my analysis of BRICs Manufacturing PMIs: http://trueeconomics.blogspot.ie/2014/12/2122014-bric-manufacturing-pmis.html and stay tuned for analysis of BRICs composite and services data coming up later this week).

Overall, the weaknesses in Russian economy continue to persist and the downside to the Composite PMI index suggests that we are now likely to see contraction in economic activity in Q4 2014. As I predicted before, official recession will most likely be unavoidable in Q4 2014 - Q1 2015. The question now is at what rate the economy will be contracting.

2/12/2014: South Stream Axed. Confusion Magnified.

Two slightly bizarre - in terms of implied contradictions - but nonetheless informative - articles on South Stream pipeline:

1. A very well-argued article by Leonid Bershidsky http://www.bloombergview.com/articles/2014-12-02/putins-gas-deal-with-turkey-is-a-defeat which correctly states the role of Bulgarian Government in effectively ending any prospect for the South Stream.
2. A strange article on FT site claiming that Bulgaria is allegedly 'shocked' by the Russian decision. (Aside from that point - quite an informative article). http://www.ft.com/intl/cms/s/0/1a5954f0-7a41-11e4-a8e1-00144feabdc0.html#axzz3Klrl4xGW

This exemplifies the all-too-often ideological positioning on the issues relating to Russia in the media - causing confusion and haphazardly throwing around statements and comments. 

2/12/2014: BRIC Manufacturing PMIs: November 2014

BRIC Manufacturing PMIs are out for November and here are the results:

• Brazil's Manufacturing Activity posted another (3rd in a row) monthly sub-50 reading, falling to 48.7 in November from 49.1 in October. This is the weakest reading since July 2013, matching the same reading in June 2014. 3mo average through November is at 49.0 against 3mo average through August at 49.2. The rot has been long-running: 3mo average through November 2013 was 50.0.
• Russia's Manufacturing PMI rose to 51.7 in November from 50.3 in October. Details were discussed here: http://trueeconomics.blogspot.ie/2014/12/1122014-russia-manufacturing-pmi.html Overall, Russian manufacturing expanded at the second fastest pace of all BRIC economies in November.
• China Manufacturing PMI disappointed as well - coming in at 50.0 in November 2014 down from already anaemic 50.4 in October. 3mo average is at 50.2 - very weak and 3mo average through August was 50.5. 3mo average through November 2013 was 50.7 - also weak by Chinese standards.
• India Manufacturing PMI posted a significant improvement. In October 2014, PMI reading was 51.6 - the fastest growth of all BRIC economies, with November reading rising to 53.3 - again the fastest growth in the BRIC economies. 3mo average through november 2014 is at 52.0 against 3mo average through August of 52.1 and an improvement on 3mo average through November 2013 at 50.2.

Table summarising Manufacturing PMI for October-November:

All in, strong gains in India continuing, while Russia posted surprising uplift in activity in November that requires future confirmation of an upward trend. Brazil is gravely weak, and getting weaker, while China is on an edge of slipping into contraction.

1/12/2014: Ruble-Oil-Dollar: Riding the Magic Mountains' Rails...

Russian ruble remains in a full tie in with oil prices:

 H/T to @Schuldensuehner

Based on my estimates, given 2015 Budget set at Rub3,500/bbl pricing, USD70/bbl oil price implies a range of Rub/USD pair at 51-52 with probability between 91 and 96 percent depending on the GDP metric one opts for. So on the lower end we can see Rub/USD as far down as 56, assuming no changes in other currencies pairs, but fundamentals-justified pair should be closer to 54-55 at the lower end of Ruble valuations and at around 52-53 for Q1 2015 average. The key to these ranges are EUR/USD and Rub/EUR pairs.

Note 1: I just returned from a rather informative trip to Moscow, so will be updating my outlook for the Russian economy accordingly in days ahead.

Note 2: Few charts explaining oil correlation with Russian GDP and GDP growth

Firstly: real and nominal GDP and nominal GDP per capita all show close links to oil prices at levels basis:

But, relationship is much weaker for changes (e.g. growth rates):

1/12/2014: Russia Manufacturing PMI: November 2014

HSBC and Markit released Russian Manufacturing PMI for November today. The data surprised to the upside, posting PMI at 51.7 - a relatively strong rise on 50.3 in October and the highest index reading since October 2013 (51.8).

3mo MA for the series is at 50.8 against 3mo average through August at 50.4 and 50.2 3mo average for the period through November 2013.

The series have been above 50.0 marker now for 5 consecutive months and current reading is statistically above 50.0.

Full release here: http://www.markiteconomics.com/Survey/PressRelease.mvc/a2c07d1d99984e63bff821447287ae97

Overall, nice surprise to the upside. Confirming the nascent positive trend as shown in chart above. However, to make any strongly positive calls, we need to see:
1) improved performance in the services sector - current a major downward drag on the composite PMI, and
2) continuity in manufacturing series to the upside through December.

1/12/2014: Irish Manufacturing PMI: November 2014

Markit and Investec Manufacturing PMI for Ireland for November came in with some pretty good numbers.

Overall index reading came in at 56.2 a slowdown from 56.6 in October, but ahead of 55.7 in September and the second highest reading in recent years, fourth highest over the last 10 years. Given October performance, some moderation was expected and November reading surprised to the higher side of this.

Current 12mo average is at blistering 55.2 with latest 3mo average at 56.2 slightly ahead of 56.0 for the 3mo average through August 2014.

As chart above shows, series break-away into positive trend that started around Q2 2013 continues, albeit with some flattening in the series from around the end of Q1 2014. All together - good news, albeit with usual caveats on the weak links between final actual economic growth and PMIs in general.

Full release here: http://www.markiteconomics.com/Survey/PressRelease.mvc/b94c35358ea64a0692bbd791519e2cac

29/11/2014: Living in a Ponzi Land of Debt Overhang

An excellent interview with Daniel Stelter on the problem of debt overhang:
http://janelanaweb.com/trends/we-all-are-in-a-ponzi-world-right-now-hoping-to-be-bailed-out-by-the-next-person-interview-with-daniel-stelter/

Worth a read.

One point I disagree with is the idea that debt mutualisation across EU states will solve the problem. It will not: the quantum of debt will not be reduced by mutualisation. We need a QE-like targeted debt deleveraging facilitated by the ECB. Not a 'warehouse for debt' but a debt furnace. 

27/11/2014: QNHS Q3 2014: State Training & Supports vs Jobs Creation

Key summary of the previous posts covering QNHS for Q3 2014 is provided at the bottoms of the post (they are now getting longer than the posts, so I should probably end this analysis).

For the last bit, lets take a look at the unemployed numbers inclusive of the State Training Schemes (JobBridge et al) and State-Supported Employment (Live Register payments).

Official unemployment figures stood at 294,800 in Q3 2014, down 9.76% y/y (a reduction of 31,900). Official unemployment was down 22.91% on crisis peak levels (-87,600) and it was down 19.39% (-70,900) on Q1 2011 levels.

Factoring in State Training and Supports Schemes Participants, number of unemployed and those reliant on state supports for their employment stood at 381,700 in Q3 2014, down 7.74% y/y (-32,040). Compared to peak levels, this measure was down 18.08% or 84,230 and compared to Q1 2011 it was down 14.67% or 65,640.

Interestingly, there have also been significant changes in terms of self-employed.

Numbers of self-employed with paid employees rose 4.72% y/y in Q3 2014 (+4,000), while their counts were down 3.59% (-3,300) compared to Q1 2011. Numbers of self-employed with no paid employees rose 1.64% y/y (+3,700) and was up 13.15% (+26,600) compared to Q1 2011.

Now, as to the Government's claims of massive jobs creation during the Government tenure, total unemployment (ex state training schemes and programmes) fell 65,640 in Q3 2014 since Q1 2011, but 23,300 of this fall was accounted for by higher numbers in self-employment absent employees. Over 3.5 years, Government stewardship of the economy was, therefore, associated with employment-linked unemployment reduction of roughly 12,100 per annum.

(Do note, that any claim that the Government 'creates' jobs is a bit dodgy, and even more dodgy would be a claim that Government 'creates' self-employment, as the current Government has clearly shown by the record of its own policies, e.g. massive tax hikes and failure to equivalise access to supports, that it has zero interest in supporting self-employed in their business endeavours).



Summary of previous posts:
1) Unemployment is falling across all durations and all demographic (age-defined) cohorts, but the pressure of long-term unemployment is rising in the cohort of older workers (40 years of age and older)
2) Irish economy added 27,600 jobs in a year though Q3 2014 compared to Q3 2013. but only 17,300 of these jobs were private sector non-agricultural jobs. On longer-term trend: Non-agricultural Private Sector employment in Q3 2014 was 13.83 lower than 2008 average and Agricultural employment was 4.9% lower. In contrast, Public and State-controlled Sectors employment in Q3 2014 was 3.56% higher than 2008 average.
3) Ireland's participation rate remains below historical average and despite a slight improvement in Q3 2014 compared to Q2 2014, labour force participation rate remains lower than for the same period in 2013.
4) Total population over 15 years of age increased by 0.08% y/y and population at work was up 1.7% y/y (+31,000), marking a slowdown in the rate of growth from 2.17% y/y in Q2 2014 (+39,100). Since Q1 2011 some 58,500 more people are at work, although this reflects seasonal variations. Numbers of those retired from employment rose to 416,700 - up 2.76% (+11,200) y/y and up 68,400 or +19.64% since Q1 2011. Q3 2014 dependency ratio was 40.34 individuals at work to 59.66 individuals not working for various reasons and remains higher than historical average.
5) Both full-time employment and total employment accelerated in Q3 2014 compared to Q4 2013-Q1 2014 dynamics, with most of the new jobs creation taking place in the category of full-time employment. This is good news. Numbers of underemployed individuals fell. Which is another good news. However, as the proportion of total employment, full-time employment remains at the low levels. 

27/11/2014: QNHS Q3 2014: Full-, Part-Time and Underemployed

Key summary of the previous posts covering QNHS for Q3 2014 is provided at the bottoms of the post.

In this post, lets take a look at labour force breakdown by employment status.

For all persons aged 15 and older, 1,860,000 were classified as at work in Q3 2014, up 1.7% (+31,000) on Q3 2013 and up 3.25% (+58,500 on Q1 2011).

Of the above, 1,453,000 were in full-time employment, which represents an increase of 2.07% y/y (+26,100) and an increase of 5.2% (+70,000) on Q1 2011.

Part-time employment numbers rose to 387,000 or +0.6% y/y (+2,300) and their numbers were up 1.58% (+6,000) compared to Q1 2011. Of these, numbers of those claiming not to be underemployed rose 6.25% y/y (+16,100) and were up 3.36% (+8,900) on Q1 2011. In employment but underemployed numbers were down significantly in Q3 2014, falling 10.84% y/y (-13,700) and by 2.42% (-2,800) on Q1 2011.

As the result of the above changes, full-time employment as the share of total employment rose to 78.1% in Q3 2014 compared to 77.9% in Q3 2013. This is still well below the historical average of 83%.

Key conclusions: Both full-time employment and total employment accelerated in Q3 2014 compared to Q4 2013-Q1 2014 dynamics, with most of the new jobs creation taking place in the category of full-time employment. Numbers of underemployed individuals fell. Which is very good news. However, as the proportion of total employment, full-time employment remains at the low levels.



Summary of previous posts:

1. Unemployment is falling across all durations and all demographic (age-defined) cohorts, but the pressure of long-term unemployment is rising in the cohort of older workers (40 years of age and older), 
2. Irish economy added 27,600 jobs in a year though Q3 2014 compared to Q3 2013. but only 17,300 of these jobs were private sector non-agricultural jobs. On longer-term trend: Non-agricultural Private Sector employment in Q3 2014 was 13.83 lower than 2008 average and Agricultural employment was 4.9% lower. In contrast, Public and State-controlled Sectors employment in Q3 2014 was 3.56% higher than 2008 average. 
3. Ireland's participation rate remains below historical average and despite a slight improvement in Q3 2014 compared to Q2 2014, labour force participation rate remains lower than for the same period in 2013. 
4. Total population over 15 years of age increased by 0.08% y/y and population at work was up 1.7% y/y (+31,000), marking a slowdown in the rate of growth from 2.17% y/y in Q2 2014 (+39,100). Numbers of those retired from employment rose to 416,700 - up 2.76% (+11,200) y/y and up 68,400 or +19.64% since Q1 2011. Q3 2014 dependency ratio was 40.34 individuals at work to 59.66 individuals not working for various reasons and remains higher than historical average. 

27/11/2014: QNHS Q3 2014: Employed, Unemployed & Retired

Key summary of the previous posts is:

1. Unemployment is falling across all durations and all demographic (age-defined) cohorts, but the pressure of long-term unemployment is rising in the cohort of older workers (40 years of age and older), and
2. Irish economy added 27,600 jobs in a year though Q3 2014 compared to Q3 2013. but only 17,300 of these jobs were private sector non-agricultural jobs. On longer-term trend: Non-agricultural Private Sector employment in Q3 2014 was 13.83 lower than 2008 average and Agricultural employment was 4.9% lower. In contrast, Public and State-controlled Sectors employment in Q3 2014 was 3.56% higher than 2008 average. 
3. Ireland's participation rate remains below historical average and despite a slight improvement in Q3 2014 compared to Q2 2014, labour force participation rate remains lower than for the same period in 2013. 

In this post, lets take a look at the QNHS breakdown by principal status.

Total population over 15 years of age stood at 3,595,600 in Q3 2014, which marks an increase of 0.08% y/y - a significant drop from 0.21% rise in Q2 2014. Compared to Q1 2014, total population over 15 years of age is down 0.1% (-3,500). In level terms, total population of age over 15 has increased 2,800 in Q3 2014 compared to Q3 2013 while in Q2 2014 y/y increase was 7,600.

Population at work stood at 1,859,500, close to Q4 2009 levels of 1,859,200 and up 1.7% y/y (+31,000). However, this marks a slowdown in the rate of growth in numbers at work from 2.17% y/y growth in Q2 2014 (+39,100). Since Q1 2011 some 58,500 more people are at work, although this reflects seasonal variations.

Unemployed numbers fell to 294,800 in Q3 2014, down 9.76% y/y which is a faster rate of decline than in Q2 2014 when numbers unemployed declined 9.67%. In level terms, the rate of decline y/y in Q2 and Q3 2014 remained identical at 31,900.

Student numbers rose 0.5% to 401,000 in Q3 2014 compared to the same period of 2013. This compares to a 0.89% decline y/y in Q2 2014. Currently, number of students is running at 0.5% below Q1 2011 levels.

Numbers engaged on home duties dropped to 470,300 - a decline of 1.63% y/y in Q3 2014, having previously dropped 1.77% in Q2 2014. Overall, there has been a dramatic drop in numbers of those engaged on home duties compared to Q1 2011 - down 11.3% or 59,900.

Numbers of those retired from employment rose once again to 416,700 in Q3 2014 - a rate of y/y increase of 2.76% (+11,200) y/y. This marks acceleration in the y/y increases compared to Q2 2014 when numbers retired grew at an annual rate of 1.61%. Since Q1 2011, numbers retired are up dramatically - rising by 68,400 or +19.64%.

Overall, numbers of unemployed, retired and other (including in state training programmes) stood at 864,800 in Q3 2014 - a decline of 2.58% y/y, but down only 100 (-0.01%) on Q1 2011.


As the result of the above changes, Ireland's dependency ratio improved slightly in Q3 2014, as shown in the chart below:

Overall, Q3 2014 dependency ratio was 40.34 individuals at work to 59.66 individuals not working for various reasons. This represents a slight improvement on H1 2014 ratio of 39.97 : 60.03. Nonetheless, dependency ratio remains higher than historical average of 42.58:57.42.

26/11/2014: QNHS Q3 2014: Participation and Unemployment Rates

Key summary of the two previous posts is:

1. Unemployment is falling across all durations and all demographic (age-defined) cohorts, but the pressure of long-term unemployment is rising in the cohort of older workers (40 years of age and older), and
2. Irish economy added 27,600 jobs in a year though Q3 2014 compared to Q3 2013. but only 17,300 of these jobs were private sector non-agricultural jobs. On longer-term trend: Non-agricultural Private Sector employment in Q3 2014 was 13.83 lower than 2008 average and Agricultural employment was 4.9% lower. In contrast, Public and State-controlled Sectors employment in Q3 2014 was 3.56% higher than 2008 average. 

Now, lets take a look at the Labour Force Participation Rate. CSO defines this as "The labour force participation rate is computed as an expression of the number of persons in the labour force as a percentage of the working age population. The labour force is the sum of the number of persons employed and of persons unemployed."

In other words, any serious improvement in employment conditions should have one of the two effects:
1) Unemployed moving into employment have zero effect on participation; and
2) New jobs added for new workers (including those previously in unemployment who have left labour force or have moved into training and are now gaining jobs or re-entering workforce) should increase participation.

What do we have in Q3 2014? Judging by the above stats on total employment and unemployment numbers, we should see an improvement in participation rates.

Based on CSO data, Q3 2014 participation rate stood at 60.4, down 0.3 points on Q3 2013. This marks an improvement on 0.5 points drop recorded in Q2 2013. Meanwhile, Unemployment rate dropped to 11.3% in Q3 2014 - a decline of 1.7 points on Q3 2013. The rate of unemployment decline slowed down in Q3 2014 compared to Q2 2014 when the rate dropped 2.1 points.

The above suggests that a significant share of the changes in unemployment is not related to jobs creation (something I will cover in a separate post).

For quarterly changes, consider seasonally-adjusted data. Seasonally-adjusted participation rate stood at 60.0 in Q3 2014, up marginally from 59.9 in Q2 2014 and marginally below 60.1 in Q1 2014. The historical average for the series is 60.7, which means we are still well below the average participation rate. Seasonally-adjusted unemployment rate posted 0.4 points drop to 11.1% in Q3 2014 compared to Q2 2014. Q2 2014 quarterly decline was 0.5 points, which suggests a slowdown in the rate of unemployment improvements in Q3 2014.

Rate of changes unemployment are shown in the chart below.

The key conclusion from the above data is that Ireland's participation rate remains below historical average and despite a slight improvement in Q3 2014 compared to Q2 2014, labour force participation rate remains lower than for the same period in 2013.

26/11/2014: QNHS Q3 2014: Employment by Broader Sectors

In the previous post I covered the issue of unemployment duration and distribution of long-term unemployment by age cohorts (see http://trueeconomics.blogspot.ru/2014/11/26112014-qnhs-q3-2014-long-term.html).


So now, lets take a look at the sectoral distribution of jobs in the economy.

Across all economic sectors, employment numbers rose in Q3 2014 to 1,926,900 - a rise of 1.45% y/y (+27,600) which represents a slowdown in the rate of growth compared to Q2 2014 when employment expanded by 1.7%.

On a 4 quarters average, current employment levels are at 1,906,630 and this is 2.18% ahead of the 4 quarters average for the period through Q3 2013.

All good. Catch is: we are still only at slightly above Q4 2009 levels in terms of overall employment and are down 3.48% on the highest level recorded during the current crisis period. Overall levels of employment are still 9.47% below the 2008 average levels.

As I noted in previous post, there are good reasons to look at the non-agricultural private sector employment as core indicator for economic activity. Here, Q3 2014 level of employment is at 1,325,500 which is 1.32% (or 17,300) ahead of Q3 2013. The rate of employment growth in Q3 was also slower than in Q2 (1.68% y/y). Q4 2013-Q3 2014 average is at 1,302,900 which is 1.87% ahead of Q4 2012-Q3 2013 average.

Our jobs markets performance was fairly positive compared to 2010-present average as shown in the chart below, but much of this positive performance disappears once we take out public sector and agricultural jobs from the equation.

So in the nutshell, Irish economy added 27,600 jobs in a year though Q3 2014 compared to Q3 2013. but only 17,300 of these jobs were private sector non-agricultural jobs.

Agricultural employment grew by 6.19% y/y in Q2 2014 and it shrunk by 0.81% (-900) in Q3 2014. Nonetheless, 4 quarters average currently stands at 111,700 which well ahead of the 4 quarters average through Q3 2013 which stood at 100,050.

Public and State-controlled sectors employment (basically state services, health and education) stood at 491,700 in Q3 2014, representing a rise of 2.33% y/y. In Q2 2014 sector employment rose 0.8% y/y. This is one of the few sectors (and the only one of the key three super-sectors identified here) that posted accelerated growth in employment in Q3 compared to Q2. Average for the four quarters through Q3 2014 stands at 492,030 which is 1.05% higher than the average for the four quarters through Q3 2013.

Let's take a different look at the numbers. Non-agricultural private sector employment in Q3 2014 was 13.83 lower than 2008 average. All employment was 9.47% lower and Agricultural employment was 4.9% lower. In contrast, public and state-controlled sectors employment in Q3 2014 was 3.56% higher than 2008 average.

Table below summarises changes for broader set of sectors.