Retail Sales get a Kickstart

The CSO have just published the Retail Sales Index for February.  The headline figure is very positive.

The volume of retail sales increased by 3.0% in February 2010 compared to February 2009 and there was a monthly increase of 14.9%. This increase in the volume of retail sales is the first recorded year on year growth in retail sales since January 2008.

This is good news.  Here is the recent pattern of the All Businesses Index by value and volume.  All the series used here are seasonally adjusted. Click graph to enlarge.

Here are the related annual and monthly changes.

We can see that the annual change in the Retail Volume Index is positive for the first time since January 2008.  Sales by value continue to show a smaller improvement as the total value is dragged down by falling prices.
Looking at the monthly changes we can see there is a dramatic turnaround, following a big fall in January.  Looking back 12 months we can see that this mirrors the pattern seen in January and February last year.  The detail of the monthly changes in the All Businesses Index is largely lost because the of length of the vertical axis needed to include these large swings seen in the January and February figures.
In the early parts of the year the Retail Sales Index is heavily weighted to motor sales as they make up a large proportion of sales.  The recovery of the All Business Index in February is largely driven by the recovery in car sales.
If we look at the Value and Volume indices excluding Motor Trades we see that the volatility present in the first graph above is now absent, but so too is the big upswing for February, though there still is a small increase by Volume in February.

The equivalent annual and monthly changes are shown here

Excluding Motor Sales we can see that Retail Sales are still below where they were last year but that the annual drops are beginning to unwind, particular by volume. 
The interesting feature of the monthly changes is the strong divergence of the Value and Volume indices in February.  For most of the period shown (bar October 2009) we can see that the monthly changes in the two series have a strong positive correlation.  However in February the monthly changes moved in opposite directions. 
When compared with January the monthly change by value fell from +1.3% to +0.1%, while the monthly volume figure increased from +0.4% to +1.3%.  What is important is that all the monthly changes seen in 2010 in these series have been positive.  We are buying more stuff but at lower prices.

Insolvencies continue to rise

One statistic that didn’t send out a positive message last week was the first quarter report on insolvencies by FGS Consulting.  The figures show that with 469 insolvencies in the first quarter of 2010, this represents an increase of 34% on the 351 recorded in the same period last year.  [In line with Rossa White’s recent discussion of the use of Irish economic statistics it is not clear why an annual comparison of the figures is made.]
However, the report also tells us that there were 435 failures in the final three months of 2009, so the quarterly change is an increase of insolvencies of just under 8%.  Data covering the period 2004 to 2009 are also available from FGS in this report with the Q1 2010 update available here.
Here’s a graph of the index FGS produce

This is not a pretty picture.  However we should note a couple of things.

1. Insolvencies are likely to be a lagging indicator.  That is, firms going into insolvency now are there as a result of poor performance of a previous period.  An upturn in economic activity is unlikely to be identified quickly in insolvency data as ailing firms from the recession will still be coming before the courts during the early stages of the recovery.
2. The data here tell us nothing about the number of employees involved in these insolvencies.  Lots of small firms failing would not have the same impact on the economy as a few large firms failing.

Looking at the Q1 2010 data at a sectoral level, Table 3 tells us that Construction and Engineering accounted for 37.7% of the total.  Retail (16.2%) and Hospitality Services (11.9%) were the other sectors to make up a double digit proportion of the total.  The remaining 34.2% was spread across 12 sectors.
At a regional level Table A1 shows that Dublin accounted for 204 or 43.5% of the 469 insolvencies in Q1 2010, and that this was an annual increase of 56.9% on the figure from the same quarter in 2009.  In contrast, 9.2% or 43 of the insolvencies were in Co. Cork and this was the exact same number of insolvencies in Q1 2009, meaning no increase on the year.

Claims that the Recession is (almost) over!

So believes Davy Economist, Rossa White, in an article in last Friday’s Irish Times.

THE IRISH recession is almost over. That statement may shock some readers as much as the mind-boggling billions needed to fill the crater in our banking system. Yet amid the clamour over the damage wreaked by reckless lending in the past, the recent stabilisation in the economy has received little attention.

Three reasons account for the blind-spot about that improvement: lagging statistics; widespread focus on the wrong metrics; and “feel” versus concrete evidence. First, data on the economy as a whole – National Accounts – are only produced once a quarter. Even then, the figures are way out-of-date, being released almost three months following the end of the reference period ie first-quarter numbers will be available in late June. It is far too late to wait until then to find out what has happened in the economy. As a consequence, many real-time (or virtually real-time) indicators are produced. The latest evidence from those indices for the month of March – the PMI surveys, Live Register and consumer confidence – suggest that the economy is bottoming.

White turns to three measures to provide evidence of an end of the recession:

• NCB’s Purchasing Managers Index and graph from here and on RTE
• The CSO’s Live Register and graph and on RTE
• KBC’s Consumer Sentiment Index and graph and on RTE

The Purchasing Managers Index and Consumer Sentiment Index are not ‘real’ in the sense that they are based on surveys of opinions rather than actual data, but they are likely to be strongly related to actual outcome as claimed by Markit Economics for the PMIs.  The only source cited by White based on real data is the Live Register and while there was reduction of 2,300 in February the Live Register showed a disimprovement in March with a seasonally adjusted increase of 600 ‘signing on’.

That is not to say that there is no good news on the economy.  In fact over the past week or so we have identified so positive trends, including:

• Car sales continue to improve
• Dublin Port traffic on the increase
• Industrial Production maintains January gains
• Exchequer Balance stops getting worse
• Fall in tax revenues eases slightly

However, as also noted some of the positive trends have an associated ‘but on the other hand’ to temper our optimism.  There is no doubt that things are getting less worse, but I don’t think we’ve quite ‘turned the corner’ yet.  We’re getting there though.

The Age of the Rockstar Economist is Over

The Age of the Rockstar Economist is (mercifully) Ending

It was good to be an economist - some would even say it was sexy.

But no more.

We've lost interest in the diviners of our economic destiny.

Because not only did most economists miss the crisis, they committed the even more pernicious sin of missing the recovery, essentially taking the Dismal Science to quadriplegic status from its prior condition of being merely hobbled.

Whether the future holds a double dip or an expansion, we've learned that economists' tools and methods will hardly show us the path, let alone provide us with a coherent navigation.

Like Craig Newark, I too missed the memo announcing that this had even begun.

Support Package for Greece

After a few weeks of uncertainty details of the financial support package for beleaguered Greece were finally announced yesterday with more details here.  Ireland will be providing about 1.5% of the total relief, or €450 million out of a total of €30 billion to be made available from the EU, on which Greece will pay an interest rate of around 5%.  The International Monetary Fund are also making about €15 billion available.

Given some of the points we have been making here and here it seems a bit absurd that Ireland should be part of a rescue deal for Greece.

Of course, we don’t have €450 million.  We’re broke.  If (and more likely when) Greece has to turn to this rescue package we will have to borrow this money so Greece can borrow it off us.  Some have suggested that if our borrowing costs are less than 5% we could even make a profit on this bailout.  There are some who were even saying the same about NAMA!

Why will Greece turn to this support?  Even after dropping about 1% from the 7.5% yields of last week, markets still expect to be compensated for taking on the risk of Greek debt.

From today’s RTE report on the Greek crisis:

Meanwhile, the interest rates which Greece must offer to attract loans dropped sharply today.

The rate, or yield, on Greek 10-year debt bonds fell to 6.62% this afternoon from 7.126% on Friday. This remains an exceptionally high rate for a member of the euro zone but is far below the the level of slightly more than 7.5% reached last Thursday when concern that Greece might partly default was running high.

The rate had dropped to 7.126% on Friday after the European Union had said it stood ready to help if asked. The high point reached on Thursday was the highest for any euro zone country since the euro was created.

If Greece went to the markets to refinance their debts they would have to pay something north of 6% to raise the money.  If they fail to do so from bond markets they can fall back on the EU’s €30 billion at a rate of 5%.

Peter Boone and Simon Johnson are clear in what they think will happen

Often assistance packages of this nature just help “smart money” to get out ahead of a default.  This could be the case here; 40-45 billion euro total money could last roughly one year.  Both Russia and Argentina got large packages in the late 1990s but never regained access to private markets, so eventually everything fell apart.

Sunday’s package should make it possible for Greece to borrow short-term but it takes courage to lend for 5 or 10 years to the Greeks unless there is much more fundamental change.

The same two authors have a much longer piece here. Towards the end of this piece there is the following footnote:

(Some people suggest Ireland is an example – however Ireland started with much lower debt levels, and despite large fiscal cuts they are still running a deficit over 10% of GDP that requires annual financing and a rapid build-up of sovereign debt.  Greece could not get these funds in markets, and they will have trouble repaying that new debt just like the old.)

Other believe in us!  On Friday a piece was posted to the BBC website advocating some Irish Lessons for the UK with a previous piece from The Telegraph on What Ireland can Teach us about Spending Cuts.

Core Inflation continues to fall

In line with what we saw back in January the rate of “core” inflation in Ireland continues to fall.  The measure of core inflation used here is the overall CPI rate less the effect of energy products and mortgage interest, both are which are largely externally driven.  Though we are now seeing increases in mortgage rates which are driven by domestic circumstances rather than ECB rate changes.
Anyway looking at the overall and core inflation rates.

We can now see that the two rates have almost fully converged but they are going in opposite directions.  The rate of core deflation increased from -2.5% in February to -2.8% in March.  In contrast the overall deflation rate eased slightly from -3.2% to -3.1%.
The main reason for this convergence is the unwinding of the swift cuts in ECB interest rates from 4.25% to 1.00% that occurred between October 2008 and May 2009.  The effect of most of these cuts has now been removed from the inflation rate as they occurred more than 12 months ago.  We can expect the mortgage interest inflation rate to turn positive in the next few months, but it is still too early to suggest that the current period of deflation is over.

Dublin Port traffic on the increase

Dublin Port is Ireland’s busiest seaport accounting for 40.5% of imports (by volume) and 43.3% of all exports (by volume) in 2008.  See here.  The Dublin Port Company have recently started issuing statements on monthly traffic at the port.  Thus far we have figures for January and February of this year, with comparisons made to the equivalent figures from last year.  Here is the picture told by the data we have so far.

The numbers for February are encouraging when compared to the same month last year.

• Total traffic up 6.4% at 2.15 million tonnes
• Imports up 3.7% at 1.29 million tonnes
• Exports up 10.7% at 0.86 million tonnes

Imports give a better indicator of domestic activity than exports and after a slight annual drop in January of -1.9%, the 3.7% increase in February is a positive sign.  It should be noted though that 75% of the goods coming through Dublin Port are destined for a region within a 50 mile radius of the port.  Only a quarter of the goods go beyond The Pale.
We don’t know anything about what categories these goods come from.  Monthly figures for previous years would also be useful to compare to pre-recessions level.   Regardless, this increase must be considered is good news.