Category Archives: Irish industry

6/1/16: Irish Manufacturing, Services & Construction PMIs: 4Q 2015

Time to update Irish quarterly PMI readings for 4Q 2015. Please note: the following refer to average PMI readings per quarter as supplied by Markit.

Irish Manufacturing PMI averaged 53.7 in 4Q 2015, down slightly on 54.7 in 3Q 2015 and the lowest quarterly reading since 4Q 2013 (jointly tied for that honour with 1Q 2014). The quarterly average has now declined in every quarter since the period peak in 4Q 2014.  Still, at 53.7 we have rather solid growth signal as is. On y/y basis, Manufacturing PMI is now down 5.1% after falling 2.6% in 3Q 2015 and rising 0.7% in 2Q 2015. 4Q 2015 marks tenth consecutive quarter of above 50.0 readings for the sector, with all of these readings being statistically above 50.0 as well. The trend in growth is down.

Irish Services PMI slipped from 62.6 in 3Q 2015 to 61.8 in 4Q 2015, down 1.3% q/q after posting a 1.4% rise q/q in 3Q 2015. On annual basis, the PMI fell 0.11% having previously risen 0.91% in 3Q 2015 and falling 0.48% in 2Q 2015. This marks 20th consecutive quarter of above 50.0 readings in the sector. In level terms, 61.8 signals robust growth in the sector, so it is a positive signal, albeit over time consistent with quite a bit of volatility and no strongly defined trend.

Irish Construction sector PMI (through November 2015) for 4Q 2015 stood at 55.9, down from, 57.1 in 3Q 2015 and marking the second consecutive quarter of index declines. Q/Q index was down 7.95% in 3Q 2015 and it was also down 2.16% in 4Q 2015. Y/Y, index was up 1.42% in 2Q 2015, down 7.6% in 3Q 2015 and down 12.4% in 4Q 2015. Volatile movements in the series still indicate downward trend in growth in the sector.

Chart above summarises the sub-trends, with Services trending very sluggishly up, while Manufacturing and Construction trending down.

As shown in the chart above, my estimated Composite measure, relating to PMIs (using sectoral weights in quarterly GDP figures) posted moderation in growth rate in 4Q 2015.  Composite Index including construction sector stood at 54.4 in 4Q 2015, down from 55.5 in 3Q 2015, hitting the lowest reading since 3Q 2013. This marks second consecutive quarter of declining Composite Index. Index is now down 1.9% q/q having previously fallen 3.8% q/q in 3Q 2015. In y/y terms, Composite Index was up 0.8% y/y in 2Q 2015, down 3.5% y/y in 3Q 2015 and down 6.52% y/y in 4Q 2015. While levels of Index suggest relatively robust growth in the economy across three key sectors, there is a downward trend in the growth rate over time.

So in the nutshell, Irish PMIs continue to signal robust growth, albeit the rate of growth appears to be slowing down along the new sub-trend present from 1Q 2015 on.

Two charts to highlight relationship between PMI signals and GDP and GNP growth rates (data through 3Q 2015).

4/8/15: Irish Manufacturing PMI: July 2015

Irish Manufacturing PMI released by Markit showed accelerated growth in the sector in July, with activity growth signal rising from 54.6 in June to 56.7 in July. This marks 26ht consecutive month of index readings above 50.0 (23rd consecutive month of readings statistically significantly above 50.0).

Overall, the trend remains for high growth in the sector, albeit the rate of increase in growth (second derivative) is moderating (turning negative) since around February 2015.

It is worth noting that the moderating trend in PMIs is confirmed by the most recent QNA datum showing Industry sector - excluding Building and Construction - in a q/q decline in 1Q 2015 of 0.31%, while the sector posted a 9.63% growth year-on-year.

Overall, another month of gains in Manufacturing is a good sign of underlying strength in the sector.

10/7/15: Irish Quarterly PMIs: Manufacturing, Services & Construction

Irish PMI for June, released earlier this month by Markit (co-branded by Investec) give us a chance to look at quarterly activity. Given volatility in both Manufacturing and Services activity in the monthly data, this provides a slightly better potential insight into what is going on in the economy (see caveat at the bottom of the post).

Q2 2015 average PMI for Manufacturing sector reads 55.8 - the lowest for any quarter since Q2 2014, but still solidly in an expansion range. Q2 2015 marks second consecutive quarter of declining manufacturing PMI readings. However, on a positive side, Q2 2015 was the 8th consecutive quarter of readings above 50. Year on year, growth in the sector remained largely unchanged and growth de-accelerated on a quarterly basis.

Q2 2015 average PMI for Services rose marginally to 61.8 from 61.6 in 1Q 2015 and is below 62.1 average for Q2 2014. Q2 2015 marks 18th consecutive quarterly reading above 50 for the Services sector. Year on year, growth slowed down in the Services sector and quarter on quarter it remained largely static.

Construction sector PMI (co-branded with Ulster Bank) posted quarterly average of 60.3 in Q2 2015, well above 54.0 average for Q1 2015, but below 61.2 average for Q2 2014. Thus, year on year growth fell in the Construction sector, but there was a significant acceleration in quarter on quarter growth. Q2 2015 marks 8th consecutive quarter with average PMI above 50.0.

Composite PMI (subject to future revisions due to sectoral weights changes once we have Q1 and Q2 national accounts) posted a reading of 60.4 in Q2 2015, up on 59.0 in Q1 2015 and marginally higher than 60.2 reading in Q2 2014. Year on year, composite PMI signalled basically static performance, while quarterly growth improved somewhat in Q2 2015.

Caveat: Irish PMI readings have very low direct correlation to actual growth in the economy, measured by either GDP or GNP. Historically, PMIs levels and changes explain at most ca 10.6 percent of variations in GNP and at most 8.8 percent of variations in GDP. In other words, booming PMIs, on average, do not translate into booming economy. 

3/6/15: Irish Manufacturing PMI: May 2015

Irish Manufacturing PMI for May came in at a stronger 57.1 reading up on 55.8 in April. The indicator currently stands above 12 mo average (56.3) and 3mo average (56.6). 3mo average through May is marginally up on 3mo average through February 2015 (56.5).

Looking at shorter run shows that current levels of activity are consistent with flattening out of the trend at high levels at the trend level of 56.5-57.0:

Overall, good solid reading for Manufacturing, subject to all usual caveats relating to questionable MNCs activities and data bias in favour of MNCs.

7/5/15: The Surreal Industrial Production in Ireland: Q1 2015

Irish Industrial production figures for Q1 2015 are confirming what has become a serious joke for many analysts: Irish growth figures are now so distorted by various multinational tax optimisation tricks, there is little point looking at much of the GDP and GNP growth coming from the official accounts.

Take a look at comparatives for seasonally-adjusted indices of volume of production across 'Modern' and 'Traditional' sectors:

Year-on-year, Q1 2015 volumes of production rose 31.73% across all Industries. In the Traditional sectors, production increased 13.1%, while in Modern sector production rose 48.7%. Guess which sector is dominated by the MNCs?

Now, take a look relative to crisis period trough:

  • Across industries, since the bottom was hit in the crisis period (in 1Q 2013), production rose 47.3% - implying quarterly rate of growth of 4.96%. 
  • Across Traditional sectors, output rose 20.42%, implying quarterly growth rate of 1.56%; and
  • Across Modern sectors output rose 78.613%, implying quarterly rate of growth of 7.52%.

Guess why is one sector growing at a rate that is almost 5 times the rate of growth in another sector? It can't be due to 'most productive labour force' we allegedly have, for both Traditional and Modern sectors have access to the same labour force. It can't be due to our 'pro-business institutions and culture', for both sectors have equal access to these, presumably. It can't be due to our 'Knowledge Economy', for - setting aside the questionable nature of its existence - both sectors can rely on knowledge in the economy equally. Wait… perhaps it is down to the difference between MNCs ability to access tax optimisation schemes which are down to international accounting methods, whilst traditional sectors firms have to pay the going headline rate of tax on their real activities? For that is, pretty much, the only fundamental long term difference between the two sectors.

But let's drill a little deeper. See the following chart:

What the above shows is the source of growth in the Modern Sectors - aka Chemicals and Pharmaceuticals - a sector that has managed to post growth of 109.2% on trough (from 1Q 2013). Yep, year on year the sector has expanded output by 60.76%. You'd have to wonder - what on earth can propel pharma to these rates of growth? The answer is the 'miracle' of contract manufacturing - a scheme whereby something not produced in Ireland, gets booked as if it was produced in Ireland.

This we call growth. To the amazement of the European politicians and the amusement of the more shrewd investment markets analysts who are starting to laugh at our PMIs, our GDP, our GNP... and so on...