Category Archives: Services PMI

9/10/17: BRIC Services PMI 3Q 2017: Another Quarter of Weaker Growth

Having covered 3Q 2017 figures for BRIC Manufacturing PMIs in the previous post, let’s update the same for Services sector.

BRIC Services PMI has fallen sharply in 3Q 2017 to 50.8 from 52.1 in 2Q 2017. This is the lowest reading since 2Q 2016 (when it also posted 50.8). The drivers of this poor dynamic are:
  • Brazil Services PMI remained below 50.0 mark for the 12th consecutive quarter, rising marginally to 49.5 in 3Q 2017 from 49.0 in 2Q 2017. Current reading matches 1Q 2015 for the highest levels since 1Q 2014. Statistically, Brazil Services PMI has been at zero or lower growth since 1Q 2014.
  • Russia Services PMI fell to 54.0 in 3Q 2017 from 56.0 in 2Q 2017 and 56.8 in 1Q 2017, indicating some cooling off in otherwise rapid expansion dynamics. The recovery in Russian Services sectors is now 6 quarters long and overall very robust.
  • China Services PMI decline marginally from 52.0 in 2Q 2017 to 51.6 in 3Q 2017. This is consistent with trend established from the local peak performance in 4Q 2016. Overall, Chinese Services are showing signs of persistent weakness, with growth indicator falling below statistically significant reading once again in 3Q 2017.
  • India Services sector has been a major disappointment amongst the BRIC economies, with Services PMI falling from 51.8 in 2Q 2017 to a recessionary 48.0 in 3Q 2017. The Services PMIs for the country have been rather volatile in recent quarters, as the economy has lost any sense of trend since around 4Q 2016.

Table below and the chart illustrate the changes in Services PMIs in 3Q 2017 relative to 2Q 2017 and the trends:

With Global Services PMI remaining virtually unchanged (at 53.9) in 3Q 2017 compared to 2Q 2017 (51.8), with marginal gains on 1Q 2017 (53.6) and 4Q 2016 (53.5), the BRIC Services sectors are showing no signs of leading global growth to the upside since 3Q 2016. For the sixth consecutive quarter, Russia leads BRIC Services PMIs, while Brazil and India compete for being the slowest growth economies in the services sectors within the group.

As with Manufacturing, BRIC Services sectors show no signs of returning to their pre-2009 position of being the engines for global growth.

Stay tuned for Composite PMIs analysis for BRIC economies.

7/3/15: Irish Services Sector Activity & PMI: January 2015

Irish Services Activity Index for January came out yesterday, offering some interesting data reading.

Contextually: Services PMI has averaged 62.2 in the 3 months through February 2015 and it averaged 61.9 for the period of 3 months through November 2014 - both showing blistering growth in the sector.

Now, January Services Activity Index came in 12.6% ahead of the same level in January 2014. 2 mo average through January (comparative to PMI averages we have) is 119.6 which is 9.44% ahead of 3mo average through the same period of 2014. This is rapid growth and it accelerated in December-January as chart below shows.

The acceleration was broadly-based:

  • Information and Communication sub-sector activity rose 21.2% y/y with a massive 10.2% jump in m/m terms in January alone. The sub-sector growth rate is around 8.11% y/y in terms of 3mo average through January.
  • Professional, Scientific and Technical sub-sector activity posted a big 14.0% jump y/y in January and was up 11.8% m/m. 3mo average through January was up 13.1% y/y.
  • Wholesale and Retail Trade etc sub-sector activity rose 8.8% y/y and 9.5% m/m - also strong growth, although 3mo average through January was up weaker 7.2% y/y.
  • Transportation and Storage sub-sector activity rose 8.4% y/y but was down 1% m/m, having previously posted rapid growth in November and December. 3mo average through January 2015 is up 16.5% y/y.
  • Accommodation and Food services activity was up 14% y/y and down 0.33% m/m in January, with 3mo average through January 2015 standing 13.9% above 3mo average through January 2014.
  • Administrative and Support services activity rose only 2.9% y/y and was down 0.8% m/m, with 3mo through January 2015 up just 2.1% y/y.

So, in summary - January figures show a very surprising (and thus suspicious) jump in overall activity across a number of sectors. CSO provides no explanation as to this jump nor any warnings on it. My suspicion is that we are seeing the effects of the infamous 'knowledge development box' introduction in Budget 2015 with MNCs pushing forward more aggressive tax optimisation strategies through it, whilst maintaining previous tax arrangements. I will post a small note on this later, so stay tuned.

Now, an update of the validity of PMIs as a measure of Services Activity recorded in the sector. Table below shows correlations between Services Activity Indices and Services PMIs

As the table shows, there is very little relationship between Services PMIs performance (I also did same analysis for rates of change in the indices that show even worse performance for PMIs as indicators of current or future actual activity) and actual Services sector activity. Out of 84 correlations, 53 are either negative of statistically zero and only 13 have strong positive correlation with either levels of activity or growth in activity. Crucially, PMIs perform stronger (relatively speaking) in correlations with levels of activity, rather than growth rates in activity (in which they perform absolutely disastrously across all time horizons and lags). About the only areas where PMIs are useful in relating to the level of activity (but not growth in activity) are: strongly with ICT, weakly with Admin & Support services and overall Services. Which suggests strong bias in PMIs toward MNCs-dominated ICT services sub-sector. Another miserable point for PMIs: they are more indicative of contemporaneous activity than providing insight into future activity.

8/2/15: BRIC Services PMIs: Poor Performance in January

BRIC PMIs for January are continuing to show divergence in growth across the four economies. I have covered manufacturing sector trends here:

Now, let's take a look at Services PMIs:

  • Brazil Services PMI fell to 48.4 in January from 49.1 in December signalling deeper contraction and marking fourth consecutive month of sub-50 readings. Current 3mo average is at 48.7 and this compares poorly to the already contractionary 49.7 3mo average through October 2014. January 2014 3mo average was 51.2. 
  • Russian Services PMI dropped significantly from already poor reading of 45.8 in December to strongly contractionary 43.9 in January. 3mo average through January 2015 is at 44.7 and this compares unfavourably to 3mo average through October 2014 at 49.5. We now have 4 consecutive months of sub-50 readings in the series. 3mo average through January 2014 was 52.2. Overall, substantial decline in Services activity as signalled by the PMI reading.
  • China Services PMI stayed declined from 53.4 in December 2014 to 51.8 in January 2015. This is the weakest performance since July 2014. 3mo average through January is at 52.7, virtually unchanged on 52.6 average 3 mo reading through October 2014 and an improvement on 51.4 3mo average through January 2014.
  • India Services PMI improved from 51.1 in December to 52.4 in January, with 3mo average through January reading at 52.0 - ahead of 3mo average through October 2014 (51.1), and ahead of 3mo average through January 2014 (47.4).
  • Overall, Russia (-1.9 points), China (-1.3 points) and Brazil (-0.7 points) posted declines in Services PMIs in January compared to December 2014, while India (+1.3 points) posted an increase. 
  • Conclusion: BRIC Services sectors are still suffering from weak growth conditions, similar to those observed in December, with Russia being the weakest, followed by Brazil, and with very weak and weakening growth in China, set against improving growth in India.
Chart and summary table below: