3/10/2013: Services PMI: September 2013

Markit and Investec released Services PMI survey press release for Ireland. As usual - the note is full of statements that can not be confirmed by information contained in the note itself.

On the side that can be reported/interpreted:

• PMI slipped from what appeared to be an unlikely jump to 61.6 in August to slightly lower, yet still strongly-expansionary 56.8. This is still a robust rate of growth. 
• I cannot tell if it was driven by a handful of MNCs or was broadly-based. Allegedly, the UK was the main source of strength for new exports orders, which are expanding, seemingly (reading the Markit release) at a more modest pace than headline PMI indicates. The UK receives huge volume of exports from Ireland on ICT services side (the likes of Google et al) and this is the major point of contention the UK Government has with Irish tax structures, so it might be that much of the services exports 'boost' comes from transfer pricing.

• Dynamics are good: there is new upward sub-trend established since September 2012 and this breaks the period of flat trend between September 2010 and September 2012. 
• Significantly, since around September 2012 the series have been - on average - in the statistically-significant zone of expansion (again, distinct from September 2010-September 2012 period when expansions on average were not statistically significant).

• On quarterly averages basis: Q1 2013 came in at 53.7, Q2 at 54.3 and Q3 came in at 58.7. Sounds impressive, however, if we account for the freakishly high reading in August (partially and imperfectly controlling for weather effects) the Q3 average sits within 55-56 range. Thus even with weather effects taken out, the overall Q3 result is strong.
• On annual basis, using quarterly averages: Q3 2010 stood at 52.5, Q3 2011 at 51.4, Q3 2012 at 51.6 and the current running average is well ahead of all of these, even if we take adjustment for unusually good weather.

Overall: good numbers. However, we have no tangible information as to the movements on profit margins, employment, export orders, new orders etc. You should read this note on some caution regarding interpreting PMI for Services for Ireland: http://www.fergco.co/2013/09/592013-cautionary-note-on-irish.html. Combined analysis of Manufacturing and Services PMIs to follow shortly.

Note: To add to this, I have now been seemingly removed from the mailing list for the slightly more detailed version of release (or Investec stopped supplying one altogether). 

Any source

5/9/2013: Irish Services Sector Activity Index: July 2013

Monthly Services Activity Index from the cSO is out for July. Some interesting movements in the series.

• Wholesale and retail trade sub-sector activity expanded m/m on seasonally adjusted basis by 2.46% in July 2013, having posted a m/m decline of 1.49% back in June 2013. 3mo MA through July 2013 was down 2.19% on 3mo MA through July 2012 and 6mo MA is down 4.21% y/y.
• Transport and storage sub-sector posted a m/m expansion of 1.86% in July 2013, following a contraction in June 2013 of 2.08%. 3mo MA is up 3.84% y/y and 6mo MA is up 4.36%.

• Accommodation and food services sub-sector activity contracted 0.76% in July 2013 m/m, having posted an expansion of 1.06% in June 2013. 3mo MA is now up just 0.32% y/y and 6mo MA is up 1.27% y/y.
• Administrative and support services sub-sector activity shrunk 1.24% m/m in July 2013, having posted 5.25% growth in June 2013. 3mo MA is now up a massive 23.76% y/y and 6mo MA is up 22.04%.

• Information and communication sub-sector activity shrunk 4.01% m/m in July 2013, having posted growth of 1.71% in June. 3mo MA is now up 8.01% y/y and 6mo MA is up 9.23% y/y.
• Professional, scientific and technical activities sub-sector is down 4.68% m/m in July, having posted an 1.74% expansion in June. 3mo MA is down 6.64% y/y and 6mo MA is down 3.23% y/y. 

Lastly, overall index:

• Services sector activity fell 0.82% m/m in July after posting growth of 0.37% m/m in June 2013.
• 3mo MA through July 2013 was up 2.73% y/y against previous 3mo period MA growth of 2.09% y/y.
• 6mo MA is up 2.41% y/y.

 Overall, still solid performance in the Services sector, with monthly (seasonally adjusted) changes not exactly stellar, but gains of the previous months continue to carry the sector to annual expansion.

Any source

5/9/2013: A Cautionary Note on Irish Services PMIs

having just written about the Irish Services PMI performance in August, here's an update on the link between PMI and actual Services Activity Index, published by the CSO (one month lag).

The latest data from CSO on Services Index will be analysed in the subsequent post, but for now a health warning reminder: Services PMI has barely any bearing on the actual Services activities in Irish economy:

Basically, correlation - from January 2009 through July 2013 - between the Services PMI and CSO Services Activity Index is exceptionally poor: it stands at just 0.1367. Services PMI readings have no explanatory power when it comes to tracking performance of the Services Activity Index. On log-changes chart, PMI is capable of capturing just 0.0071% of variation in Services Activity Index. On straight levels even less. Lags are not yielding any meaningful improvements in explanatory power, neither do non-linear models.

In my view, this testifies to the extreme skews in PMI survey data to reflect the role of MNCs in ICT and IFSC sectors here.

Any source

4/7/2013: Irish Services Sector Activity Index: May 2013

Irish Services Index for May was out today, so here are the updated trends.

Wholesale Trade activity rose from 114.7 to 116.7 between April and May 2013, with index up 1.74% m/m having posted a 7.9% rise m/m in April. 3mo average through May 2013 is down on 3mo average through May 2012 by some 7.45% and 6mo average through May 2013 is down 6.47% y/y. Thus, two last months' readings are encouraging, but not yet enough to reverse overall slower activity recorded y/y.

Wholesale and Retail Trade and Repair of Motor Vehicles etc sector activities also improved m/m in May 2013, rising 1.22% after posting a 3.61% rise m/m in April. 3mo average through May 2013 is down 5.27% y/y and 6mo average through May 2013 is down 4.22% y/y. Relative to historical max (history here references period from January 2009), the index is still down 4.27%

Transport and Storage sector is up 1.49% m/m in May 2013 having posted a 1.06% increase in April 2013. 3mo average through May 2013 is up 5.79% y/y and 6mo average is up 6.62% y/y. Relative to historical max, the index is down 5.84%.

Accommodation and Food services activity dipped 0.58% m/m in May, having recorded a 3.38% drop in April. 3mo average through May is still up 1.40% y/y and 6mo average is up 1.72% y/y. The sector is down 17.78% on peak for the period from January 2009.

Administrative & Support services activity rose 0.68% m/m in May, having recorded a 2.42% rise in April. 3mo average through May is still up 20.67% y/y and 6mo average is up 18.06% y/y. The sector is currently at a peak for the period from January 2009.

Information & Communication services activity dipped 3.23% m/m in May, having recorded a 2.11% drop in April. 3mo average through May is still up 10.31% y/y and 6mo average is up 7.72% y/y. The sector is down 5.28% on peak for the period from January 2009.

Professional, Scientific and Technical services activity dropped 4.40% m/m in May, having recorded a 0.11% decline in April. 3mo average through May is down 3.72% y/y and 6mo average is down 4.34% y/y. The sector is down 35.0% on peak for the period from January 2009.

Overall services sector activity declined 0.74% m/m in May, having recorded a 1.21% expansion in April. 3mo average through April 2013 was up 1.83% y/y and this improved to 2.31% growth for 3mo average through May 2013. 6mo average through May 2013 was up 1.72% y/y. Relative to peak, overall services activity is down 1.64%.

Any source

28/6/2013: Exports-led recovery: Q1 2013

I covered the headline numbers and trends for the GDP and GNP in previous two posts: here and here. Now, onto some more detailed analysis.

Remember, from the very beginning of the crisis, Irish and Troika leaders have been incessantly talking about the 'exports-led recovery'. Position on this blog concerning this thesis consistently remained that:

1. Exports growth is great, but
2. Exports growth is unlikely to be sufficient to lift the entire economy, and
3. Exports growth projections were unrealistic, while
4. Exports re-orientation toward services, away from goods was less conducive to delivering real growth in the economy.

Q1 2013 data continues to confirm my analysis.

In Q1 2013, based on real valuations (expressed in constant market prices),

• Exports of Goods & Services shrunk 6.47% q/q and fell 4.09% y/y. This compares to +1.19% q/q growth in Q4 2012 and +1.28% expansion y/y. Compared to Q1 2011, when the current coalition took over the reigns in the Leinster House, total exports of goods and services are down 0.88% in real, inflation-adjusted terms. Troika sustainability projections envisioned growth of over 6% over the same period of time.
• Imports of Goods and Services showed pretty much the same dynamics as exports in both Q4 2012 and Q1 2013, but owing to sharper contractions in 2011-2012 these are now down 4.34% compared to Q1 2011.
• Exports of Goods fell in Q1 2013 by 3.83% q/q and 9.37% y/y, while there were declines of 2.68% q/q and 2.33% y/y in Q4 2012.
• Exports of Services were down 8.75% q/q but up 1.27% y/y in Q1 2013, and these were up 4.77% q/q and 4.63% y/y in Q4 2012.

• Trade Balance in Goods and Services fell 4.96% q/q and was down 3.63% y/y in Q1 2013, with Q4 2012 respective changes at -15.91% q/q and +0.98% y/y. Compared to Q1 2011, trade balance is up 15.91%
• Trade Balance in Goods was down 6.63% q/q in Q4 2012 and this deteriorated to -10.73% growth in Q1 2013. Y/y, trade balance in goods contracted 0.05% in Q4 2012 and shrunk 10.59% in Q1 2013. On Q1 2011, trade balance in goods is down 14.04%.
• Trade Balance in Services fell from EUR1,130mln in Q3 2012 to EUR132mln in Q4 2012 before improving to EUR601mln in Q1 2013. In Q1 2012 the balance stood at EUR28 million.

Any source

28/6/2013: Underlying dynamics in Irish GDP & GNP: Q1 2013

Q1 2013 National Accounts do not make for a pleasant reading. The implications from the business cycle perspective are pretty clear - we are in a continued (3rd quarter in a row) recession, which constitutes the fourth 'dip' since the onset of the Great Recession. The post summarising that evidence is linked here.

In this post, let's take a look at the GDP and GNP in constant prices.

On seasonally-adjusted basis (removing seasonal volatility),

• GDP at constant factor cost (national output ex-taxes and subsidies) fell 0.65% q/q in Q1 2013, having contracted 0.12% q/q in previous quarter. On an annual basis, the GDP at factor cost declined 1.32% in Q1 2013, accelerating annual rate of decline relative to Q4 2012 when it fell 1.04%.
• Compared to Q1 2011, when the current Government came to power, GDP at factor cost was 0.72% higher in Q1 2013.
• Taxes rose 1.04% q/q in Q1 2013, after having posted a decline of 0.64% in Q4 2012. On an annual basis, taxes were down 0.79% in Q4 2012, but they rose 2.32% in Q1 2013.
• Compared to Q1 2011, taxes were up 1.16% in Q1 2013.
• To summarise the above, austerity is clearly biting. Taxes are rising at a 60% faster rate than economic activity.
• Subsidies remained relatively constant in Q1 2013 on an annual basis, implying that net taxes rose strongly.
• GDP at constant prices (accounting for taxes net of subsidies - the headline metric usually referenced as GDP) fell 0.58% q/q in Q1 2013, which follows a shallower contraction of 0.18% recorded in Q4 2012. On an annual basis, GDP contracted by 1.03% in Q1 2013, following a 1.02% contraction in Q4 2012.
• Net factor income for the Rest of World (outflows to the rest of the world from factor payments, net of inflows of Irish incomes earned abroad) fell dramatically in Q1 2013, down 16.96% q/q, following a 3.22% decline q/q in Q4 2012. In year-on-year terms, net outflows fell 16.55% in Q4 2012 and by 27.58% in Q1 2013. 
• It is impossible to tell from QNA the core drivers of the net outflows, however, from the balance of payments data we have reinvested earnings in Q1 2013 by the foreign companies in Ireland at EUR4,753 million, up on EUR4,010 million in Q4 2012 and down on EUR6,768 million in Q1 2012. The gap of Repatriations of earnings from Ireland are not provided for Q1 2013.
• On foot of significantly reduced outflow of funds abroad, GNP at constant market prices rose in Q1 2013 rose 2.85% q/q and 5.46% y/y, beating growth of 0.51% q/q and 3.01% y/y recorded in Q4 2012. 
• However, as analysis in the subsequent posts will show, this growth is entirely dependent on reduced outflows of funds abroad. Q/q, net expatriation of funds slowed down by EUR1,204 million, while earnings outflows abroad shrunk by EUR2,015 million.
• Taking the average net factor payments abroad for Q1 2010-2012 in place of Q1 2013 figure, GNP growth controlling for net factor payments changes would have been around -0.01% y/y and -2.48% q/q.

Charts below summarise seasonally unadjusted series:

The chart below clearly shows that even in y/y terms, we are now in a solid, three-quarters long (so far_ recession.

The GDP/GNP gap has, predictably - given the shrinking of net factor payments abroad - declined from 25-26 percent (seasonally-adjusted and unadjusted) in Q1 2012 to 17.3-17.5 percent in Q1 2013:

It is worth noting in the chart above a significant increase in volatility in the gap, which is reflective of the greater volatility in Ireland's GDP and GNP series as well as destabilisation in growth correlation between GDP and GNP. This new pattern is most pronounced starting with Q1 2008 and is associated with both - the crisis and the underlying re-distribution of growth drivers away from the domestic economy to services exports, especially during the 2010-2011 'recovery'.

Any source

27/6/2013: Quadru-Sextu-ple-dip Recession in Ireland: Q1 2013

All you need to know about today's QNA data release (though it won't deter me from more detailed analysis later) is:

• Ireland is in a quadruple-dip recession (chart below)
• You and I are in a sextuple-dip recession (second chart below)

Incidentally, just in case you felt like previous 'expansion' (officially from Q1 2010 through Q2 2012) was not much of an expansion at all, then you live in the world we inhabit, closely related to the Gross Domestic Demand. If you felt things were just fine then, you might live in Australia, or read too much of the Department of Finance presentations on their web site, or... I have no idea...

As I commented on earlier post by Brian Lucey: That light at the end of the tunnel did turn out to be an incoming train...

Update: Meanwhile, Minister Noonan thinks that the above (3 consecutive quarters of contraction in the economy, official fourth dip in the Great Recession and 6th dip in Total Domestic Demand) is "certainly disappointing but it's one set of statistics" (link). How long till Enda pops up to greet us with Dude's famous return: http://www.youtube.com/watch?v=QsogswrH6ck

Any source

11/6/2013: Irish Services Index: April 2013

Good news is: on an annual basis, per CSO, in April 2013:

• Administrative and Support Service Activities rose +21.3%, 
• Information and Communication went up +15.4%, 
• Other Service Activities +4.2%, 
• Transportation and Storage +1.4% and 
• Accommodation and Food Service Activities (+0.3%) increased 

On bad news front:

• Wholesale and Retail Trade were down -4.2% and 
• Professional, Scientific and Technical Activities fell -0.6%.

The seasonally adjusted monthly services value index increased by 1.2% in  April 2013 when compared with March 2013 and there was an annual increase of 4.1%.

As you would know, I am not covering Services PMIs anymore, as these are no longer being released in any useful data format (Markit has decided to exclude reporting of actual levels of sub-components for PMIs, preferring to practically give instead its analysts personal opinion about these levels). 

However, I will continue reporting CSO data.

So here's more detailed analysis:

• Wholesale Trade sub-index rose from 106 in March to 114.1 in April, marking a 7.64% rise m/m and a decline of 4.68% y/y. 3mo MA through April 2013 stood at 110.23, down on 116.67 3mo MA through January 2013 and down sharply on 122.07 3mo MA through April 2012. 6mo MA through April 2013 is at 113.45, down on 121.10 6mo MA through April 2012.
• Wholesale and Retail Trade, repair of vehicles sub-index improved from 102.3 in March 2013 to 105.7 in April 2013 (+3.32%), but the index is down 4.17% on April 2012. 3mo MA through April 2013 is at 104.3 against 3mo MA through April 2012 at 111.27; 6mo MA through April 2013 is at 106.32 against 6mo MA through April 2012 at 110.80.
• Transport & Storage sub-index is at 113.4 in April 2013 up marginally (+0.62%) m/m and up 1.43% y/y. 3mo MA through April 2013 is at 111.83 up on year ago 3mo MA of 106.83. 6mo MA through April 2013 is at 111.18, up on 6mo MA through April 2012 at 106.73.

• Accommodation & Food Services slipped from 105.9 in March 2013 to 102.7 in April 2013 (-3.02%) and the index is up only 0.29% y/y. 3mo MA through April 2013 is at 103.2, which is up on 3mo MA through April 2012 at 101.2. Similarly, 6mo MA through April 2013 is at 103.77 which is up on previous year level of 101.3.
• Much of the improvements in the above sector was driven by rising value of food services, up 3.51% y/y. Accommodation services actually fell 1.35% y/y and were down 9.07% m/m.
• Administrative and support services activity also improved m/m (+1.66%) and rose strongly by +21.31% y/y. Huge gains were recorded in the activity on 3mo MA basis y/y and 6mo MA y/y basis. I have no explanation to this other than possibly reclassification of some activities into this category, plus boom in on-line services centres in Dublin (much of google and other ICT services firms activities here relate to support and admin, rather than R&D or professional work).

• ICT services continue to boom, rising 15.42% y/yin April, although slipping 1.59% m/m from the historical record-breaking levels in March 2013. on 3mo MA basis, April 2013 stood at 122.13 strongly up on previous year levels of 109.87. On 6mo MA basis, April 2013 came in at 120.42, up on 110.42 a year ago.
• In contrast to ICT services and Admin services, Professional, scientific and technical activities index declined for the third month in a row, falling to 91.0 in April 2013 from 91.2 in March 2013 (-0.22%) and is marginally lower (-0.55%) y/y. 3mo MA through April 2013 is at 91.4 and it is virtually flat on 3mo MA through April 2012 (91.2). 6mo MA through April 2014 at 91.0 is down on 94.5 6mo MA through April 2012.

• Overall Services sector activity index rose 1.21% m/m from 107.7 in March 2013 to 109.0 in April 2013, and is up 4.11% y/y. 3mo MA through April 2013 is at 107.63 which compares marginally positively against 105.4 3mo MA a year ago. 6mo MA through April 2013 is at 107.62, also marginally up on 105.47 6mo MA through April 2012. However, 3mo MA through April 2013 was identical to 3mo MA through January 2013, implying zero growth, and 6mo MA through April 2013 was slightly ahead of 6mo MA through October 2013 (107.6 relative to 105.9).

Any source

7/5/2013: Irish Services Index, Q1 2013 data

Irish Services Index is out today for Q1 2013 and here are some details (monthly data analysis to follow). Keep in mind, data only starts from Q1 2009, so when referencing current levels of activity to peak, that refers to peak from Q1 2009 and not relative to pre-crisis activity.

• Value in Wholesale & Retail Trade, Repair of Motor Vehicles & Motorcycles sector declined in Q1 2013 to 105.2 q/q (down 3.22% from 108.7 in Q4 2012) and is down 5.40% y/y. Q4 2012 value index was down 1.36% y/y, so things are getting worse faster. Relative to peak (since 2009 Q1 data start) the index is now down 5.40%. 
• Value index for Transportation and Storage sector slipped marginally from 110.5 in Q4 2012 to 110.0 in Q1 2013 (-0.45% q/q) and is up 5.97% y/y. However, rate of annual growth declined in Q1 2013 compared to Q4 2012 when it stood at 8.97%. Relative to peak the index is still down 9.39%.
• Accommodation and food services activities index also slipped marginally from 104.7 in Q4 2012 to 104.3 in Q1 2013 (down 0.38% q/q). Y/y index is up 3.48% in Q1 2013 and this is a slight gain on 3.05% y/y growth in Q4 2012. However, relative to peak index reading is still down 14.86%.

• Information and communication sector index remained practically flat in Q1 2013 in q/q terms at 116.6 which is only 0.09% up on 116.5 in Q4 2012. Y/y index is up 3.83% and this shows deceleration in growth from +8.47% growth posted in Q4 2012. Despite this, Q1 2013 marks the peak of activity in this sector for any quarter since Q1 2009.
• In contrast with ICT sector activity, the knowledge economy core services sub-sector, Professional, scientific and technical activities index has suffered steep declines since 2009. In Q1 2013 the index stood at 91.2 (up 0.22% q/q) up only 0.55% y/y. This marks a minor reversal of a significant decline of -8.36% recorded in 12 month through Q4 2012. The index is down massive 29.14% on peak.

• Administrative and support service activities index has been a surprising performer during the crisis. In Q4 2012 it stood at 104.7 and Q1 2013 this increased to 110.4 a gain of 5.44% q/q. Index is now up 20.92% y/y and this compounds 11.38% y/y growth recorded in Q4 2012. Q1 2013 marks the peak quarter on record for the sub-sector.
• Overall services index slipped from 107.2 in Q4 2012 to 106.2 in Q1 2013 (-0.93% q/q), although activity is still up 0.85% y/y. Y/y growth in Q1 2013 marks a slowdown from 2.19% y/y expansion in Q4 2012. The index overall is 0.93% below the peak and is currently running slightly behind the level of activity recorded in Q1 2009.

Overall, quarterly data shows weakening in Services sectors performance, and stripping out the effects of ICT (dominated by tax transfers-booking MNCs), Services side of the economy is showing weaknesses that are alarming. Recall that exports of services growth in 2010-2012 acted to compensate for declines in domestic demand and weaker growth (turning negative) in exports of goods. Should Services activity continue to suffer even modest declines, our GDP and GNP growth will be impaired. 

To see more forward-looking data, read my analysis of Services PMI for April: http://www.fergco.co/2013/05/352013-irish-services-pmi-april-2013.html

Any source

7/4/2013: Irish Services Activity Index - February 2013

Irish Services activity fell in February 2013 per latest CSO data, marking second consecutive month of decline. In February 2013, Irish services index dropped 1.03% m/m and was down 0.45% y/y. The index 3mo MA is now at 106.43, only slightly ahead of 106.07 in 3mo period through November 2012, and still ahead of 105.43 3mo MA through February 2012. The same dynamics are repeated at the 6mo MA level.

Largest m/m declines were recorded in Wholesale Trade (-7.17% m/m and down 10.71% y/y), Accommodation & Food Services (-1.89% m/m and down 0.69% y/y). Largest m/m increases were in Administrative & Support Services (+2.95% m/m and up 15.74% y/y) and in Professional, Scientific & Technical Activities (+1.68% m/m and 2.02% y/y). 

In annualised terms, largest increases were recorded in Administrative & Support Services (+15.74% y/y), Accommodation Services (+6.92% y/y) and Transport & Storage (+5.61%).

One interesting point in terms of longer range analysis:

As chart above shows, the PMI data for Services Activity continues to bear no relations to the actual Services Activity Index measurements. Recall that in January and February, Services Activity Index posted two consecutive declines in activity. Over the same months, PMI for Services posted robust growth signals at 56.8 in january and 53.6 in February.

Any source