Industrial Production drops back slightly

After the big gain seen in January, the latest CSO release shows that industrial production volume has fallen back slightly for the last two months.  Even with these slight falls the long-term trend appears to be heading upwards.  However, this may not hold up to closer scrutiny.

The CSO have revised the slight increase shown in the provisional figures for February to a slight decrease.  The initial 1.2% monthly increase has been revised to a 1.3% decrease.  There was also a monthly decrease of 2.6% in March.   Even with these drops, the huge increase in January means the annual change in  industrial production is still positive. 

However it could be that the one-off monthly increase of 20% that occurred in January is masking the actual trend.  If we look at the monthly changes, these have been negative for five of the past six months.

Industrial production has shown monthly decreases for 15 of the past 24 months.  While the annual change remained positive in March, as it has for the first three months of the year, if the recent month on month trend continues (excluding the January blip) we could find industrial production dropping back below the levels seen last year.  The release of the April figures in a month’s time will shed light on this.

Industrial Production maintains January gains

After following a downward trend for two years the CSO’s index of Industrial Production volume jumped up in January.  Provisional February figures were released today and show that the increases in January have been maintained.  Here is a graph of the index for all industries (NACE 0 to 35).  Click graphs to enlarge.

In looking at annual changes production volume in January 2010 was 5.8% higher than in January 2009.  The corresponding February increase is 11.7%.  The annual changes can be seen here.

This is the first time there has been two consecutive months of positive annual change since September 2008.  In 12 of the 15 months beginning in October 2008 the annual change was negative.
This is good news.  But let’s look at the sectors driving this change in a little more detail.
One of the key industrial sectors in Ireland is Basic Pharmaceutical Products and Preparation (NACE 21).  The performance of this sector recently has been exceptional.  Here we have the index of production volume in the since 2005.

The production index was relatively stable from 2005 through to the end of 2007.  We can see that when the recession took hold from early 2008 that production in the pharmaceutical sector shot up.  Production volume in this sector is now about 50% greater than it was three years ago.  Some of the annual changes are staggering.  What recession?
The pharmaceutical sector is a huge proportion of Irish industrial output.  Using the CSO’s figures the gross value added of all industries (NACE 05-35) in Ireland in 2005 was just under €31 billion.  On its own Basic Pharmaceutical Products and Preparation (NACE 21) accounted for some €10 billion or 32.7% of this.  Using the same 2005 data the sector comprises 36.2% of all manufacturing in Ireland.
These 2005 figures completely underestimate the current importance of the pharmaceutical sector.  Since then we have seen that production in the sector has grown by about 50% since 2008 while production in most other sectors has been in line with the recession and has declined.  I am only guessing but it could be that pharmaceuticals make up about 50% of the total industrial gross value added in Ireland. 
[The Census of Industrial Production would reveal more but it is classified by NACE revision 1.1 rather than NACE revision 2.0 so it would take a small bit of work to reconcile the two.  For our present purposes the 2005 data used to calculate the weights in the Industrial Production release are fine.]
The CSO are being quite laboured in producing employment data for 2009.  Data does not extend beyond the second quarter of last year.  In Table 3 of the Industrial Production release the CSO provide some employment data for the ‘modern' sector.  One row of figures relates to four sectors: chemicals and related products (NACE 20), basic pharmaceutical products and preparation (NACE 21), reproduction of recorded media (NACE 1820), and medical and dental instruments and supplies (NACE 3250).  By gross value added the pharmaceutical sector made up 76.7% of this group. 
If we look at the employment figures for this group.

Quarter	Numbers employed	Change
2008 Q2	42,400
2008 Q3	42,600	+200
2008 Q4	40,900	-1,700
2009 Q1	40,100	-800

At a time when the reported level of output has been expanding at a huge pace the number of people employed in the sector has been declining.