05/07/2011: Employment in Services and Manufacturing - June 2011

As promised earlier, analysis of employment data from Manufacturing and Services PMIs for June 2011.

• Headline on Services PMIs: After posting only marginal growth in the previous month at 50.5, Irish services activity rose at a faster pace in June to 52.4. However, overall Q2 2011 average at 51.0 signals lower rate of expansion than Q1 2011 at 53.4. Current index is above it's 12mo MA of 51.6.
• Headline on Manufacturing PMIs: June activity signals a slowdown at 49.8, down from expansionary May reading of 51.8. Q1 2011 expansion of 56.1 average has moderated through Q2 2011 to 52.5. 12mo MA is at 52.6.
• Employment sub-index in Manufacturing showed further acceleration in the rate of decline from 49.9 in May to 48.3 in June. The sub-index now stands below 12mo MA of 50.2. Q1 2011 average was expansionary 53.2 and despite two consecutive months of contractions, Q2 sub-index still reads 50.7. This compares favorably relative to Q3 2010 reading of 46.8 and Q4 2010 reading of 49.9. Employment in Manufacturing has now fallen for two months, breaking expansionary readings trends established over December 2010-April 2011.
  
• Employment sub-index in Services remained flat at 48.1, signaling continued contraction in May and marking a second consecutive month of contractions since an outlier expansion in April 2011 to 51.1. 12mo MA is now at 48.7, while Q1 2011 reading was 49.2, accelerating down to 49.1 in Q2 2011. In comparison, Q3 2010 reading was 48.9 and Q4 2010 reading was 47.6, so the rate of jobs attrition in the sector has declined in H1 2011 relative to H2 2010. With April 2011 out-of-line reading of expansion, this index remains in contractionary territory in 39 out of 40 last months

With both Manufacturing and Services signaling contractions in employment, we are now firmly into jobless recovery territory in Services and stepping into the recessionary territory for Manufacturing.

It is worth noting that volatility of employment sub-index has risen since the beginning of the crisis in Manufacturing, but declined in Services, most likely due to the persistent trends in domestic services. The same pattern is true for core PMIs.

05/07/2011: Services PMIs: June 2011

Services PMIs for Ireland are out today for June from NCB Stockbrokers. Last week, manufacturing PMIs came in disappointingly low, signaling renewed contraction in the sector (see details here). The headline numbers for services are:

• Core PMI reading for Service has risen to 52.4 in June from 50.5 in May - a reasonably strong increase. Controlling for volatility, last 3mo average stands at 51.0, down from the Q1 2011 average of 53.4, and below 12mo MA of 51.6, which means that the current reading is still short of Q1 2011 average, but ahead of it's own quarter average and historical average.
• Q2 2010 period average was 52.9, ahead of Q2 2011 average of 51.0. To compare to the dire conditions in 2009 - Q2 2009 average was 38.0. Now, remember, PMI is not an absolute measure of activity, but a relative one, which means that given a deep fall-off of 2009, we need strong growth - again, my benchmark would be to see PMIs in 60s+ - in 2010 and 2011 to compensate for the declines in 2009. This not happening. Still, it is good to see the index sticking above 50 for the 6th month in the row.

• New business index - my concern last month - has notched up on May, rising from 48.2 in May to a still contractionary 49.4 in June. Current reading is consistent with the Q2 2011 average and is down on both Q1 2011 average of 50.9 and 12mo average of 49.9. Q2 2010 reading was 52.6. Again, as with core PMI Q2 2009 reading was 37.5 - abysmally low, but there was no recovery since then, as new business index was stuck below 50 in all months except April-August 2010 and February-April 2011, furthermore, index never reached beyond 54.0 (June 2010), so no momentum in terms of new business orders recovery.
  

Note in the above chart, that we now are two consecutive months running with core PMI signaling weak expansion, while New Business Orders PMI stuck in contraction zone.

In terms of other components - note, I will be covering employment in a separate post for both Services and Manufacturing PMIs:

• Backlogs of work have declined again in June - from 44.9 in May to 44.5 in June, implying that service providers shifted more resources to complete unfinished work. Q2 2011 average stands at a contractionary 45.3, down from Q1 2011 average of 48.0 and 2010 Q2 average of 48.8. 12mo average reads 45.6.
• Employment index remained flat at contractionary 48.1, down from expansionary 51.1 in April. With April 2011 out-of-line reading of expansion, this index remains in contractionary territory in 39 out of 40 last months. More on this later.
• Output Prices/Charges index has fallen further into contraction (deflation) territory, declining from 43.9 in May to 43.5 in June and marking 35th consecutive month of declines (in a separate post I will be covering the issues of profit margins, so stay tuned for more on output/input prices divergence).
• Input prices have remained in expansion territory, although the pace of inflation has moderated further from 54.7 in May to 51.8 in June, with June marking 3 consecutive month of moderating input prices growth.
• Confidence / Business Expectations index has shown lower rate of growth, with June reading of 60.3 coming in behind May index reading of 62.3. Overall, Q2 2011 average was 63.1 and Q1 2011 average was 65.8, while 12mo average stands at 64.0, so clearly confidence is getting stronger slower. This is largely irrelevant in my view, as the index reading was averaging 50.7 (growing confidence) during the abysmal Q2 2009, just as other components were showing massive fall-off the cliff for services activities in Ireland. In addition, I have previously shown that over the entire life-span of the series data, confidence failed to act as a predictor of any real future activity (core PMIs, New Orders, New Export Orders or Employment) in the sector.
  
• New Export Business index continued to signal expansion, albeit at lower rates with June index standing at 53.1 down from 54.4 in May. Q2 2011 average now stands at 54.0 against Q1 2011 average of 54.8. 12mo average is 53.6, while Q2 2010 was 56.5. So data suggests a clear slowdown in the rate of exports growth. This, of course, is an important indicator as CSO does not report monthly series for services exports.
  
• Finally, profitability index has moderated the fall recorded in May, rising from contractionary May reading of 41.4 to still contractionary 44.8 in June. June reading is now ahead of Q2 average of 43.7, and Q1 2011 average of 43.5, but behind Q2 2010 average of 48.0 and behind 12mo average of 45.5. Again, more on profitability in a separate post

04/07/2011: Exchequer balance: H1 2011

Exchequer results are in for June and in the previous two posts I discussed tax receipts (here) and overall distribution of taxation burden across various tax heads (here). In this post, I will be quickly covering Exchequer balance/deficit for H1 2011.

Overall tax and non-tax revenues came in at €16,744.6 million against €15,298 million in H1 2010 with both tax revenues and non-tax receipts on current side coming upside. However, total voted current account expenditure came in at €20,547 million in H1 2011, up on €19,655 million. This hardly amounts to 'austerity' working (more on expenditure analysis in the later blogpost).

Non-voted current expenditure came in at €3,375 billion, similar expenditures for 2010 over the same period were €3,071 million. Banking measures in H1 2011 accounted for €3,085 million against comparable period 2010 official (see below) figure of zero.

Overall, Exchequer deficit for H1 2011 stood at €10,828.5 million against 2010 figure of €8,887 million. Excluding banking measures H1 2011 deficit stood at €7,743, while excluding banking measures accumulated over 2010 and backed-out to June 2010, the ex-banks deficit for H1 2010 was around €7,590. Note - this imperfectly takes into account variable timing for deficit increases due to banks measures.

Here's the chart:
Again, I am not seeing any dramatic improvements here on 2010 performance.

It is worth noting - remember that department expenditure will be covered in the later post - that national debt interest and management expenses through H1 2011 have risen to €2,501 million from €2,231 million in H1 2010. Thus interest and debt management cost are currently running at 16.36% of total tax receipts.

Through H1 2011 we have borrowed €11,370 million from EFS, €7,178.5 million from IMF and €3,659.6 from EFSF, so total borrowings rose from €7,589.6 million in H1 2010 to €16,653 million in H1 2011. Of the money we borrowed (at more than 5.8% pa), €10,277.5 million is still held in deposits with Irish banks at, oh, maximum rate of ca 1.4-1.5% (see here) implying an annualized cost of this shambolic support for Irish banks to the Exchequer of ca €450 million - oh, about the amount of money the Government is clawing out of the pensions levy?..

04/07/2011: Banking Guarantee & Cross-Border Deposits Protection Co-operation

My comment for the Central Banking on the Irish example of importance of cross-borders cooperation in deposit insurance. Apologies for pdf copies, as the site is subscription only.

04/07/2011: Tax burden composition: H1 2011

A quick post summarizing changes in the overall tax burden in Ireland, based on the latest Exchequer returns.

In Q2 2011:

• Income tax took up 39.52% of the total receipts, up from 28.7 in Q2 2007 and 34.42% in Q2 2010
• Share of VAT in total tax receipts has declined to 33.22% from 35.49% in Q2 2010 and from 34.97% in Q2 2007
• Share of Corporation tax receipts also dropped to 9.32% in Q2 2011, down from 11.16% in Q2 2010, but up from 7.48% in Q2 2007
• Excise taxes accounted for 14.4% of total tax intake in Q2 2011, down slightly from 14.4% in Q2 2010, but up on 13.91% in Q2 2007
• Stamps, CGT and CAT have fallen from 14.06% share in Q2 2007 to 3.63% in Q2 2010 and to 2.64% in Q2 2011.

04/07/2011: Exchequer Receipts: H1 2011

Exchequer receipts are out for June and here are the stats on tax receipts (expenditure and deficit analysis forthcoming later).

Headline figures:

• Income tax came in at €6,038 cumulative for January through June 2011, which obviously includes the new USC. There is no point of comparing this against previous years, so I will include a chart only for completeness. So instead - relative to target: income tax came in above the target by €11 million cumulative for 6 months through June, or +0.2% - not exactly a stellar performance by any possible measures.
• But here's an interesting bit (illustrated in the chart) inclusive of USC, 2011 income tax for the first 6 months of the year is pretty much matching 2007 income tax for the same period (€5,972 million) which had no USC receipts in it.
  

• VAT surprised on the downside, with receipts at €5,075 million or 8.89% below same period in 2009 and 0.92% below same period in 2010. 2010 first six months yielded receipts of €5,122 million. VAT receipts are now running 2.6% below target or some €134 million short.
  

• Corporation tax receipts continued their fall off the cliff, albeit the distance to the bottom seemed to have shrunk somewhat. January-June 2011 corporate taxes came in at €1,424 million, some 11.55% below 2010 figure of €1,610 and some 24.26% below the same period of 2009. Corporate tax receipts are now €116 million (or 7.6%) behind target.

• Excise taxes came in at €2,200 million, up 5.5% yoy and up 2.76% on 2009 period. This means that Excises are now €79 million (3.7%) ahead of target.

Of smaller tax heads:

• Stamps are down 5.02% yoy and down 22.97% on 2009. Put things into perspective, in 6 months through June 2007 stamps yielded €1,696.5 million for the Exchequer. In the same period this year - only €265 million, down 84.38%.

• Capital taxes: CGT fell to a miserly €90 million down from €114 million in 2010 and from €1,046.1 million in the same period in 2007. That's contraction of 91.4% on 2007 figures.
  
• CAT fell off the cliff (despite QNA showing uplift in fixed capital formation in Q1 2011, suggesting that the uplift had little to do with indigenous investment - taxable - and more to do with MNCs - non-taxable), shrinking to €48 million in H1 2011 down from €131 million in the same period of 2010.

• Lastly, Customs came in at €117 million, up 16.3% from €101 million a year ago.

Total tax receipts have therefore increased (again, due to USC) to €15,279 million in H1 2011 from €14,432 million in the same period 2010 (+5.87%), but are down 3.35% on same period of 2009 and are 26.59% below their level in 2007.

Relative to target, Irish Exchequer receipts for H1 2011 are €115 million (0.7%) short of budgetary targets. So no smoking gun there so far, but the risks remain on the downside as economy signals slowdown since May.