5/2/16: Ifo Economic Climate Index for Euro area: 1Q 2016

Ifo Economic Climate Index in the Euro Area has posted another contraction at the start of 1Q 2016 marking the third consecutive quarter of declines and reaching the lowest level since 1Q 2015. IFO Economic Climate Index (the headline index for the series) for the Euro area fell to 118.9 in 1Q 2016 from 122.0 in 4Q 2015. Activity signalled by the index, however, remains above the historical average at 107.5 an well above downturns-consistent average of 84.8.

The chart below shows index trends:

As highlighted in the chart above, EU Commission own sentiment index for economic activity is also pointing to weakening growth conditions in 1Q 2015. The EU Commission Sentiment Index was un a divergence to the Ifo index since the start of 2015.

Two core components of the Index also moderated in 1Q 2016. Present Situation sub-index fell from 153.8 for 4Q 2015 to 151.0 in 1Q 2016, marking the first quarter of contraction after four consecutive quarters of increases. The sub-index remains firmly ahead of the historical average of 127.5.

Perhaps the most worrying is the decline in Expectations for the next 6 months sub-index which fell from 103.3 in 4Q 2015 to 100.0 in 1Q 2016. This marks third consecutive quarter of declines in expectations and the index level currently is closer to the historical average of 95.8.

Overall, the gap between expectations forward and present conditions assessment has declined. Gap index (my own calculation) is now at 66.2 for 1Q 2016 against 67.2 in 4Q 2015. This suggests that weaker expectations are now starting to feed through to weaker present assessments.

A chart below illustrates the trends for sub-indices:

Per Ifo release: “Assessments of the current economic situation were most negative in Greece and Finland, but the current economic situation also remains strained in France, Italy and Cyprus. The situation was only slightly better in Spain, Portugal and Austria; but assessments for Austria were far less negative than last quarter. The sharpest recovery was seen in Ireland, where survey participants assessed the current economic situation as very good. In Germany the economic situation is considered to be good, although assessments were somewhat less favourable than last quarter.

The six-month economic outlook remains positive nearly everywhere. Economic expectations brightened in Austria, France, the Netherlands, Estonia and Latvia. In the other countries the outlook either remains unchanged, or is somewhat less positive. WES experts were only slight pessimistic about Greece, Portugal and Spain.”

5/2/16: Three Facts from the U.S. Labor Markets & Reality of the U.S. Economy

Three interesting snapshots of the U.S. economy: Non-Farm Payrolls, Initial jobless claims and Labour Productivity. Individually - they are important to traders. Jointly, they are important to investors.

But, first, what has been happening.

Let’s start with jobless claims. Initial jobless claims rose in the last week of January by 8,000 to a (seasonally-adjusted) 285,000. This was worse than consensus forecast by some 5,000 jobs. And worse, 4-week average rose to 284,750 at the end of January, up 2,000.

For history wonks, numbers below 300,000 are considered a sign of tight labour market, so no surprise here that claims can rise with a bit greater volatility when the labour markets are running some overheating.

But last two weeks of January also marked something that has not happened in the markets in some three years - they marked two consecutive weeks of y/y increases in new claims. As always, weather is being blamed, and as always, two weeks are just two weeks. So far, nothing hugely significant. Just a hiccup.

Which brings us to today’s release of NFP. Going into it, consensus forecast was for a ca 180,000 new jobs print (Marketwatch) and ca 190,000 (Bloomberg & Reuters) for January, to compensate for a large 292,000 print in December. What was delivered? Revised December Non-farm payroll figure to 262,000 and January figure of 151,000. Revision to December was large, but smaller than under-shooting in January. January preliminary estimate came as third weakest preliminary figure printed in the last 13 months.

Yes, everyone is running around with 4.9% unemployment figure - sub-5% expected. Good news. However, U-5 unemployment (Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force) rose on seasonally-adjusted basis from 6.1% in November and December 2015 to 6.2% in January. And U-6 Unemployment (U-5, plus all employed part time for economic reasons) was static at 9.9% for the third month in a row, having previously been at 9.8% in October 2015.

And average hourly earnings up 2.5% y/y (same as previous month growth) and m/m growth of 0.5% (better than 0.3% consensus forecast and way better than 0% growth in December). These look like positives. Another positive is labour force participation - up to 62.7% in January, against 62.6% in December. But this positive is questionable: not seasonally adjusted participation rate in January 2016 was 62.3% which is lower than same for January 2015 at 62.5%.

So now we have: wages up, unemployment rate down, claims down by a lot less than expected, and participation rate is virtually flat. All at high levels of employment. 

Which gets us around to the last bit: productivity. Per U.S. latest data, non-farm labour productivity has fallen a whooping 3% y/y in 4Q 2015 - third biggest decline in productivity for any period since 1Q 2007 and the largest 4Q decline in productivity over the same period. Consensus was for 1.8% drop on foot of 2.2% rise in 3Q 2015. The Unit labour costs went up 4.5% over the same period of time (against consensus forecast of 3.9% rise and up on 1.8% increase in 3Q 2015). Labour costs were up in three quarters of 2015.

Problems with productivity growth have been plaguing the U.S. recovery - in 2015, non-farm productivity was up only 0.6%, which is massively below historical averages (more than x3 2015 rate of expansion).

Here’s the real problem, folks: U.S. economy is struggling to sustain growth absent real investment and absent new technological improvements. It is that simple. And the jobs markets are starting to show the strains of this. Productivity growth being weak, while employment rising and remaining high amidst rising labour costs means only one thing: the U.S. is currently running above its potential rates of growth. It is, in other words, overheating. And that at roughly 2% annual growth rates against pre-crisis averages above 3%. One of two things will have to happen:

• One: employment moderates and labour costs growth abates; or
• Two: business investment has to rise (note: explicitly not public investment, because raising public investment in these labour markets conditions will simply exacerbate the twin problem of tighter labour markets and low productivity growth).

Good luck taking an investment strategy on one. Which leaves us with taking a strategy on two… or going defensive on an expectation that stagnation will be setting in...

4/2/16: Tear Gas v Lagarde’s Tears: Greece

Here’s Greece on pensions reforms:

Source: https://www.rt.com/news/331265-greece-tear-gas-protet/#.VrN56JItCdA.twitter

Here’s IMF on same:

Note: to watch the video comment by Mme Lagarde on Greek situation, please click on this link: http://www.imf.org/external/mmedia/view.aspx?vid=4739363229001 (answer on Greece starts at 22’:22”). Otherwise, here’s official IMF transcript of it:

“I have always said that the Greek program has to walk on two legs: one is significant reforms and one is debt relief. If the pension [system] cannot be as significantly and substantially reformed as needed, we could need more debt relief on the other side. Equally, no [amount of debt relief] will make the pension system sustainable. For the financing of the pension system, the budget has to pay 10 percent of GDP. This is not sustainable. The average in Europe is 2.5 percent. It all needs to add up, but at the same time the pension system needs to be sustainable in the medium and long term. This requires taking short-term measures that will make it sustainable in the long term.

“I really don't like it when we are portrayed as the “draconian, rigorous terrible IMF.” We do not want draconian fiscal measures to apply to Greece, which have already made a lot of sacrifices. We have said that fiscal consolidation should not be excessive, so that the economy could work and eventually expand. But it needs to add up. And the pension system needs to be reformed, the tax collection needs to be improved so that revenue comes in and evasion is stopped. And the debt relief by the other Europeans must accompany that process.  We will be very attentive to  the sustainability of the reforms, to the fact that it needs to add up, and to walk on two legs. That will be our compass for Greece. But we want that country to succeed at the end of the day, but it has to succeed in real life, not on paper.”

Yep. Lots of good words and then there are those ungrateful Greeks who are just refusing to understand:

1. How can Mme Lagarde insist that there’s a second leg (debt relief) where the EU already said, repeatedly, there is none? and
2. How there can be sustainability to the Greek pensions reforms if there are actually people living on them day-to-day who may be unable to take a cut to their pay? Who's going to feed them? Care for them? On what money? Where has IMF published tests of proposed reforms with respect to their impact on pensioners?

Strangely, Mme Lagarde seems to be not that interested in answering either one of these concerns.

4/2/16: Smal v Large Cap Stocks: Recession Cycle Performance

Credit Suisse did an interesting exercise recently in a note to clients. They took U.S. equities indices for large cap (S&P500) and small cap (Russell 2000) stocks and computed an average downside to each index across all U.S. recessions from 1980 on and then to the upside from the post-recession trough. The episodes averaged over are: 1980, 1981-1982, 1990-1991, 2001, and 2007-2009. As a caution, there is no survivorship bias (index composition risk) adjustment to the resulting data.

So per CS: “Measuring the average peak-to-trough performance of the Russell 2000 and S&P 500 from one year before the start of each recession to the end of the downturn, the bank found that large caps were more resilient than small caps across the five slumps: the S&P 500 fell by an average of 32 percent, while the Russell 2000 dropped 37 percent. But it was a different story on the way back up. The Russell 2000 averaged returns of 86 percent from the start of each recession to one year after its end, while the S&P 500 posted returns of just 51 percent.”

So over the part of the cycle covered by CS, Russell 2000 was up, net, 17 percent, while S&P was up, net, only 3%.

4/3/16: Irish PMIs for January: Growth Is Up at Year Start

Irish Manufacturing and Services PMIs for January were published earlier this week and are worth looking into as a signal for the underlying economic activities at the start of 1Q 2016.

Irish Manufacturing PMIs rose for the second month in a row in January, reaching 54.3 from 54.2 in December. This is the highest level of activity since July 2015 and confirms some reversal of PMIs dynamics from slower growth recorded from August 2015 through November. Of course, when we are talking about ‘slower growth’ we are talking about still very high rates of expansion as singled by PMI. 3mo average through January 2016 is at blistering 53.9, which is up on scorching 53.7 3mo average through October 2015 and down on scorching 56.1 3mo average through January 2015. These telephone numbers compare extremely well against the historical average of 51.0 and even post-crisis average of 53.0.

Per Markit: “Business conditions in the Irish manufacturing sector improved solidly at the start of 2016, as had been the case at the end of 2015. A sharp and accelerated expansion in new orders was the key driver of strengthening conditions, with output and employment also continuing to rise. Lower raw material costs led to the sharpest fall in input prices in three months, while output charges decreased for the first time since last October… The health of the sector has now strengthened in each of the past 32 months.”

Notably, per Markit: “The decrease in output prices ended a two-month sequence of inflation” which is suggesting that Irish producers are now contributing to downward pressures in Euro area markets.

Meanwhile, Irish Services PMI also rose robustly in January, reaching 64.0 against 61.8 in December 2015. Again, these are unbelievably strong  numbers that raise some serious questions about the survey methodologies and/or coverage, but more on this later. 3mo average Services PMI for Ireland was at 61.5 in 3 months through October 2015 and rose to 63.1 in 3mo period through January 2016, up on already unbelievable 62.2 for the 3 months through January 2015. Historical average of 54.9 - again, extremely strong by any measure - is in the dust.

Per Markit, Services PMI “signalled the sharpest expansion in services output since June 2006. Activity has now risen in each of the past 42 months. Companies expect further improvements in economic conditions over the coming 12 months to lead to growth of activity. Business sentiment picked up slightly at the start of 2016. The rate of expansion in new business also quickened in January, and was the joint-fastest since August 2000. New orders have risen continuously throughout the past three-and-a-half years. As has been the case throughout the past four-and-a-half years, new export business rose in January. Moreover, the rate of expansion accelerated from that seen in December. … Consequently, employment rose at a substantial pace during January and one that was sharper than seen in the previous month. A further sharp rise in input costs was recorded in January, as the effect of higher wages and salaries outweighed the downwards impact of lower fuel costs. The rate of inflation across the service sector ticked up marginally, remaining above the series average.”

As per chart above, both Services and Manufacturing sectors are now in a massive expansion, with rates of growth in the underlying activity well in excess of those historically anchored in the pre-crisis period. Services divergence toward higher growth is still being contrasted by lagging growth in Manufacturing, but signs of possible catching up in Manufacturing to the upside are also present.

Per chart above, we can confirm new growth trend in Services and the potential for sustained growth acceleration in Manufacturing (albeit no new trend yet).

Per chart above, both sectors of the Irish economy are operating at the margins of economy’s potential (judging by historical trends). This is hard to interpret as an organic shift in potential rates of growth, so most likely, we are going to witness some growth moderation in months ahead.

Still, current performance raises serious questions as to where this data is coming from. It has long been suspicion of this author that the surveys dynamics have been driven by multinational enterprises operating in both sectors. We have no confirmation of this nor denial of this from Markit and we do not know the quality of their coverage across two sectors. However, one has to be aware of the simple fact - as shown on this blog in the past, survey results have been (in the past) deeply out of line with actual underlying activity registered in the sectors. Currently, both Services and Manufacturing indices are running fairly closely correlated with the reported activity in these sectors, but past low correlations with GDP and GNP and sectoral value added metrics suggests that the survey base can be skewed in favour of unweighting MNCs.

4/2/16: BRIC Composite PMIs: January

In two recent posts, I covered

• Services PMIs for BRIC economies http://trueeconomics.blogspot.com/2016/02/3216-bric-services-pmis-for-january.html and
• Manufacturing PMIs for BRCI economies http://trueeconomics.blogspot.com/2016/02/1216-bric-manufacturing-pmi-january.html

Now, let’s take a look at the Composite PMIs.

As noted in a more in-depth analysis, here: http://trueeconomics.blogspot.com/2016/02/3216-russian-services-composite-pmi.html, Russia’s Composite Output Index remained in contraction territory in January, posting a reading of 48.4, up on 47.8 in December 2015. The Composite index was helped to the upside by the Manufacturing PMI which was also in a contractionary territory at 49.8, but above the very poor performance levels of the Services PMI. January marked second consecutive month that both Manufacturing and Services PMIs for Russia were below 50.0. Last time that this happened was in December 2014-January 2015 and in February-March 2015 - in other words, at the dire depth of the current crisis. Overall, Russia is once again (second month in a row) ranks as the second lowest BRIC performer in terms of Composite PMI reading, ahead of only a complete basket case of Brazil.

As also noted in an in-depth analysis here: http://trueeconomics.blogspot.com/2016/02/2216-china-services-composite-pmis-for.html due to a substantial improvement in the Services PMI, China’s Composite PMI signalled stabilisation in overall economy-wide business activity in January, with Composite Output Index registering fractionally above the no-change 50.0 value at 50.1, up from 49.4 in December. However, overall, Composite PMI of China has been above 50.0 in only two of the last 6 months and on both occasions, index readings were not statistically distinguishable from 50.0. 3mo average through January for Composite PMI stood at 50.0 (zero growth) against 48.9 average through October 2015 and 51.3 average through January 2015. In other words, the economy, judging by Composite PMI might be closer to stabilising, but growth is not exactly roaring back.


India’s Composite PMI rose from 51.6 in December to an 11-month high of 53.3 in January. Per Markit, “Lifting the index were a rebound in manufacturing production as well as stronger growth of services output.” 3mo average for Composite reading is now a5 51.7, slightly down from 52.3 3mo average through October 2015 and compared to 52.8 3mo average through January 2015. With manufacturing and services order books now in an expansionary territory, “growth of new business across the private sector as a whole was at a ten-month high… Higher workloads encouraged service providers to hire additional staff in January, following a stagnation in the prior month. …Meanwhile, manufacturing jobs rose at a marginal rate.” While overall Indian economy has clearly returned to robust growth, underlying conditions remain relatively weak by historical standards. 3mo average Composite index at current 51.7 is well below the historical average of 54.8. India remained on track to being the strongest economy in the BRIC group overall for the 7th month in a row.

In the case of Brazil’s Composite PMIs, the index registered continued rate of contraction rate of contraction for 11th month in a row - a record that is worse than that for Russia. Over the last 24 months, Brazil’s Composite PMI has managed to reach above 50.0 on only 5 occasions, against Russia’s Composite PMI’s 7. Over the last 12 months, Brazil’s Composite PMI was above 50.0 only once, with Russian counterpart rising above 50.0 in 4 months. On a 3mo average basis, Brazil’s Composite PMI stood at 44.5 in January 2016, slightly better than 43.4 reading for the 3mo period through October 2015, but below 49.3 reading attained in January 2015. Per Markit: “January saw Brazil’s economic recession weighing on the private sector for another month …the seasonally adjusted Composite Output Index remained in contraction territory, highlighting a further sharp drop in activity. Moreover, the current sequence of continuous downturn has been extended to 11 months, the longest in almost nine years of data collection.” Both Services and Manufacturing sectors order books posted contractions, meaning that “the private sector as a whole posted an eleventh successive monthly decline in new business. Firms reported tough economic conditions and a subsequent fall in demand.” Once again, Brazil retained its dubious title as the worst performing BRIC economy - a title it has been holding for the last 11 months.

Charts and table to illustrate:

As shown in the above charts, Russia is now exerting a downward momentum on overall BRIC growth dynamics for the second month in a row. However, due to improvements in India and China, BRICs as a whole are now adding positive support for global growth. That support is relatively new and still fragile enough not to call a change in trend in the series.

3/2/16: BRIC Services PMIs for January: Some Rays of Hope

In the previous two posts, I covered

• Russian Services and Composite PMIs: see detailed discussion here http://trueeconomics.blogspot.com/2016/02/3216-russian-services-composite-pmi.html and 
• China Services and Composite PMIs here: http://trueeconomics.blogspot.com/2016/02/3216-russian-services-composite-pmi.html

Now, let’s take a look at the Services PMIs for all BRIC economies, followed by a post on their Composite PMIs.


Russian Services PMI for January 2016 came in with a hugely disappointing reading of 47.1 from already poor 47.8 recorded in December. On a 3mo average basis, the index is now at 48.2, worse than already poor 49.4 average for the 3 months through October 2015, although, as expected - well above the abysmal 44.7 average for the 3mo period through January 2015. The Services sector has now posted sub-50 PMI readings in 4 consecutive months, with deteriorating readings in 3 consecutive months, signalling no respite to the Services sector contraction.


China Services PMI came in at a surprising uplift in January, reaching 52.4 - the highest reading since August 2015, and up on 50.2 in December. This move was surprising since Chinese services PMI has been deteriorating every month from October 2015. As a reminder, the downturn in the manufacturing sector hit Chinese Manufacturing PMI hard with index falling to a 3-mo low in January and staying below 50.0 line of zero growth for 11 months in a row.


Brazil Services PMI remained the weakest of all BRIC economies at 44.4 in January up on a truly abysmal 43.5 in December. 3mo average for Brazil Services PMI was at 44.5, which is somewhat better than 43.2 average for the 3mo period through October 2015, but worse than 48.7 3mo average through January 2015. Brazil’s Services PMIs have now been below 50 line for 11 months in a row.

According to Markit: “Current downturn longer than 08-09 crisis… Activity decreased in all six monitored categories, with the quickest contraction seen at Renting & Business Activities. Leading services output to fall was another decline in incoming new work. Inflows of new business dipped at a softer pace, but one that remained sharp.” As in the case with Russian economy, inflationary pressures, primarily driven by currency devaluations, have created adverse headwinds for Services sector firms in Brazil. “January data pointed to a build-up of inflationary pressures in Brazil’s service economy. A weaker currency (particularly against the US dollar) combined with higher utility bills had reportedly resulted in an overall increase in cost burdens. The rate of inflation climbed to a three-month high and was well above the long-run series trend. As a consequence, service providers raised their average tariffs again, and at the fastest pace since October.”

Brazil’s economy not only continuing to contract, but remains the weakest of all BRIC economies, in Services sector terms since April 2015.


India Services PMI posted an impressive rise from already rather robust 53.6 in December to 54.3 in January 2016. The 3mo average has reached 52.7 in the period through January 2016, which is stronger than 52.1 recorded for the period through October 2015 and ahead of 52.0 3mo average through January 2015. Overall, this was the highest Services PMI reading for India since January 2013 and marks second consecutive month of PMIs acceleration. With this, Indian economy clearly has shaken off some of the downward momentum on growth that was building up in May-September 2015 and again roared it’s head in November 2015.

Per Markit: “Posting a 19-month high… Services Business Activity Index pointed to a marked and accelerated expansion of activity across the sector. Growth was noted in four of the six monitored categories, the exceptions being Hotels & Restaurants and Transport & Storage. Underpinning the overall increase in services output was a seventh successive monthly expansion of new business inflows. Having accelerated to the joint-fastest since June 2014, the growth rate was marked. Anecdotal evidence highlighted strengthening underlying demand and improved weather conditions.”

Overall, January marks the second month of India’s Services PMI leading other BRIC economies to the upside.

Chart and summary table to illustrate:

3/2/16: Russian Services & Composite PMI: Poor Start for 2016

Russian Services PMI for January 2016 came in with a hugely disappointing reading, falling to 47.1 from already poor 47.8 recorded in December. Per Markit: “This fall was driven by a solid contraction in new business levels, leading to another deterioration in backlogs of work. Meanwhile, job shedding persisted throughout the sector as firms turned pessimistic towards their future outlook for activity. Input prices continued to rise at a much quicker pace than average charges.”

On a 3mo average basis, the index is now at 48.2, worse than already poor 49.4 average for the 3 months through October 2015, although, as expected - well above the abysmal 44.7 average for the 3mo period through January 2015. Just how bad the current 3mo average and the latest monthly index reading is? Historical average for Russian services PMI is at 55.0 - full 7.9 points ahead of January reading.

Bad news is that the Services sector contraction has now accelerated (on both monthly basis- for the second consecutive month) and on 3mo basis too.

Again, per Markit: “Operating conditions in the sector remained challenging… Down from 47.8, the latest reading signalled the quickest decline in output for ten months.”

Chart to illustrate the Services sector woes:

Meanwhile, Russia’s Composite Output Index remained in contraction territory in January, posting a reading of 48.4, up on 47.8 in December 2015. The Composite index was helped to the upside by the Manufacturing PMI which was also in a contractionary territory at 49.8, but above the horror show of Services PMI. January marked second consecutive month that both Manufacturing and Services PMIs for Russia were below 50.0. last time that this happened was in December 2014-January 2015 and in February-March 2015 - in other words, at the dire depth of the current crisis.

Note: I covered Russian Manufacturing PMIs in detail here: http://trueeconomics.blogspot.com/2016/02/1216-russian-manufacturing-pmi-january.html.

Per Markit, “the rate at which incoming new orders contracted [for Services providers] was the fastest since March 2015, with anecdotal evidence linking this to a lack of market demand. That said, Russian manufacturers reported a slight expansion in incoming new orders in January, having registered a decline in December.”

Overall, Russia is once again (second month in a row) ranks as the second lowest BRIC performer in terms of Composite PMI reading, ahead of only a complete basket case of Brazil. More on this to come, so stay tuned.

2/2/16: China Services & Composite PMIs for January: No Signs of Roaring Growth

China Services PMI came in at a surprising uplift in January, reaching 52.4 - the highest reading since August 2015, and up on 50.2 in December. This move was surprising since Chinese services PMI has been deteriorating every month from October 2015.

Per Markit: services “providers had a strong start to 2016, with business activity increasing at the fastest rate in six months. …According to panellists, improved inflows of new business underpinned the latest expansion of services activity.”

As a reminder, the downturn in the manufacturing sector hit Chinese Manufacturing PMI hard with index falling to a 3-mo low in January and staying below 50.0 line of zero growth for 11 months in a row. Details of Manufacturing PMI dynamics are covered in-depth here: http://trueeconomics.blogspot.com/2016/02/1216-bric-manufacturing-pmi-january.html.

On a 3mo moving average basis, China Services PMI stood at 51.3 in January 2016, exactly the same as for the 3mo period through October 2015 and down on 52.7 reading for the 3mo average through January 2015. It is worth noting that the index never dipped below 50.0 in its entire history and the historical average for the index is at 55.1. Current reading is statistically significantly below the historical average.

Due to substantial improvement in the Services PMI, China’s Composite PMI signalled stabilisation in overall economy-wide Chinese business activity in January, with Composite Output Index registering fractionally above the no-change 50.0 value at 50.1, up from 49.4 in December. However, overall, Composite PMI of China has been above 50.0 in only two of the last 6 months and on both occasions, index readings were not statistically distinguishable from 50.0.

Still, 3mo average through January for Composite PMI stood at 50.0 (zero growth) against 48.9 average through October 2015 and 51.3 average through January 2015. In other words, the economy, judging by Composite PMI might be closer to stabilising, but growth is not exactly roaring back.

2/2/16: Irish Examiner on Electioneering and Fiscal Policy Space

Irish Examiner article on fiscal policy space entertained by various political parties with a couple of comments of my own: http://www.irishexaminer.com/ireland/opposition-claims-fine-gael-and-labour-figures-on-the-economy-just-dont-add-up-379637.html.

2/2/16: MNC Ireland: A new Documentary

A new and well-worth watching documentary on the power of multinational companies in Ireland and Ireland's status as a corporate tax haven is available here: https://vimeo.com/137175562.

Note: Strangely enough, the documentary cites me as a Chairman of the IRBA (which I was at the time). It is worth repeating again that I never speak on behalf of any organisation I am involved with and the IRBA never had a corporate opinion on any policy-related issues. I only express my own personal views.

1/2/16: BRIC Manufacturing PMI January: A Test of Stagnation?

I covered China Manufacturing PMI in an earlier separate note here: http://trueeconomics.blogspot.com/2016/02/31116-china-manufacturing-pmi-its-at.html with core conclusion that Chinese Manufacturing PMIs have been now running second worst in the BRIC’s group since July 2015, staying above only Brazil’s - a country that is in an outright recession. PMI index came in tat 48.4 in January, marginally up on 48.2 in December 2015, marking 11th consecutive month of sub-50 readings. 3mo average through January 2016 is now at 48.4 against 3mo average through October 2015 at 47.6. Current 3mo average is down significantly on 49.8 3mo average through January 2015. Last time Chinese Manufacturing posted statistically significant expansion (as measured by PMI reading above 51.46 - the statistically significant growth marker - was back in July 2014.

India Manufacturing PMI posted a rise to 51.1 in January from 49.1 in December, with January reading being highest in 4 months. This sounds like good news, expect it is not. The reason is that at 51.1, the PMI is well below historical average of 54.5. And it is below January 2015 level of 52.9. 3mo average through January 2016 is at zero growth mark 50.0, which compered poorly to 3mo average through October 2015 at 51.4 and worse relative to 53.6 which is 3mo average through January 2015. Market release was quite upbeat on India numbers, however, noting that “the industry recovered following the contraction seen at the end of last year. Alongside a resumption of output at some firms impacted by December’s flooding, manufacturers also benefited from rising inflows of new business from domestic and export clients.” The sectoral breakdown of the index is also concerning. Again per Markit, “The consumer goods subsector remained the principal growth engine at the start of the year, seeing substantial expansions of both output and new orders. In contrast, producers of investment goods saw output and new orders fall, while production volumes stagnated in the intermediate goods category.”

Russian PMIs were covered in a stand alone post here: http://trueeconomics.blogspot.com/2016/02/1216-russian-manufacturing-pmi-january.html with core conclusion that although Russia retained its's position as the second strongest performing economy by Manufacturing PMIs in the BRIC group in January, the latest reading puts Russian Manufacturing in a stagnation zone too close to 50.0 to call it a full-blown contraction. This has meant that over the last 3 months, Russian Manufacturing PMI averaged 49.7, a reading nominally below 50.0, although an improvement on 49.1 average for 3 months through October 2015, and on 49.4 3-mo average through January 2015. In simple terms, Russian Manufacturing continued to contract in 3 months through January 2016, but the rate of contraction was virtually indistinguishable from zero growth.


This leaves us to cover Brazil Manufacturing PMI. Brazil Manufacturing index posted a rise in January, hitting an 11-mo high of 47.4. By all normal metrics, this is a disaster territory reading, consistent with rather sharp deterioration in trading conditions. But for Brazil - this was an improvement, especially as output and news orders both were contracting at slower rates in January. Per Markit: “The downturn in the Brazilian manufacturing sector continued at the start of 2016, with levels of production and new orders contracting for the twelfth successive month. This continued to filter through to decisions relating to staff hiring, stock holdings and purchasing activity, all of which also declined during the latest survey month.”  On the positive (sort of) side, “output declined at weaker rates in each of the three production categories (consumer, intermediate and investment) covered by the survey. Underlying the latest decrease in output was a further reduction in the level of incoming new orders. The latest drop in inflows of new work received was mainly centred on the domestic market, as the volume of new export business expanded for the second straight month in January.” On a 3mo average basis, 3mo average through January 2016 is at 44.5, which is worse that 3mo average through October 2015 (45.6) and 3mo average through Ja
nuary 2015 (49.9). In simple terms, Brazil remains the basket case of BRIC economies, leading the group to the downside on Manufacturing.

Chart and table below summarise the BRIC’s outlook:

So, overall, BRIC Manufacturing side of the economy is still in a woeful shape. India's return to growth is relatively weak, while contractionary conditions prevail in Brazil (strong, albeit moderating on the end of 2015), Russia (very weak contraction, closer to stagnation) and China (where PMI data has been at serious odds with official national accounts data for some time now). The net result for the global growth is not exactly encouraging.