4/1/2013: Irish Manufacturing PMI: December 2012

The latest Manufacturing PMI for Ireland, released this week
by the NCB, reflect a number of ongoing changes that can lead to a confirmation
of the new trend toward slower expansion for Q4 2012 – Q1 2013. At the same
time, the overall series continued to post expansion, in contrast with all euro
area PMIs – a rather impressive performance.

Hence, my top conclusions – based on the detailed analysis
below – are:

  • Irish Manufacturing continued (albeit slowing in
    the rate) expansion reflects impressive robustness of the exports-driving MNCs,
    while
  • The overall strong and persistent headwinds of
    slower global trade flows growth and the contractions in trade within the euro
    area are starting to feed through to Irish manufacturing sector – a trend that
    can prove to be a significant drag on growth in Q4 2012 – Q1 2013.

Now to the detailed analysis:

Top line reading for PMI
came in at 51.4 in December, down from 52.4 in November. December reading
printed exactly at 12mo MA and below 6mo MA (52.1) and 3mo MA (52.0). 3mo MA of
52.0 for October-December is down on 52.2 3mo MA for Q3 2012, but is above Q2
2012 average (51.5) and Q1 2012 (49.8). Q4 2012 average is bang on at Q4 2010
average and ahead of 49.1 average for Q4 2011. The December reading was the
lowest in 4 months.
All of this implies a weakening growth momentum with output
index peaking, for 2012 at 53.1 and 53.9 in June and July, afterward slipping
toward 51.7 average reading. It is worth noting that a reading above 53 is
statistically significantly different from 50.0, while a reading at or below
52.2 is not significantly different from 50.0.
Output PMI fell
from 54.4 in October to 53.8 in November and to 51.2 in December 2012. December
2012 reading was the first statistically insignificantly different from
zero-growth 50.0 in 3 months and marked seventh month in 2012 when growth was
statistically at or below 50.0. At the same time, December reading was the 8th
consecutive month that output index printed above 50.0 level. All of which only
makes sense when one recognizes that Output index is strongly volatile. For
example, historical STDev for overall PMI is at 4.44, while STDev since January
2000 is at 4.36 and the crisis period STDev since January 2008 is at 5.43. In
Contrast, Output PMI STDevs were 5.14, 4.94 and 6.04 respectively.
At 51.2, December output reading was below 12mo average of
51.7, and below 6mo average of 52.6. However, on a positive side, and
statistically significantly, Q1 2012 index averaged 50.2, rising to 51.4 in Q2
2012, followed by 52.1 in Q3 and 53.1 in Q4.
While Output slowdown was marked only in December, fall off
in the New Orders sub-index was much
more pronounced and is signaling a longer term trend down. New Orders reading
came at 50.9 (still above the 50.0 libne, but not statistically significantly
different from 50.0) down from November reading of 52.1. New Orders activity
peaked in 2012 in June-July and has fallen since. At the same time, in simple
level terms, the index was for the tenth consecutive month above 50.0.
12mo MA for the New Orders sub-index is at 51.8, while 6mo
MA is at 52.6. Q1 2012 average was at 49.9, Q2 at 52.0, Q3 at 53.3 and Q4 2012
came in at 51.9.
In contrast with sluggish bouncing along the zero growth
line in the New Orders series, New
Export Orders
series posted surprising rise in December, reaching 53.6
(statistically significantly above 50.0) from 52.1 (not statistically
significantly different from 50.0). This marked the highest reading in the
series since July 2012 and allowed the sub-index to regain territory lost since
August 2012. Per survey respondents, the core driver for new export orders was
rising demand from the US.
New Export Orders have been steady on a gentle upward trend
– based on averages and correcting for some shorter term volatility – Q1 2012
average was at 51.9, Q2 and Q3 2012 at 52.8, Q4 at 52.5. Thus, 12mo MA is at
52.5, very close to 6mo MA of 52.7.

Other subcomponents:

I will deal with employment and profit margins conditions
once I complete analysis of the Services PMI in the next few days, so stay
tuned.