Ireland manufacturing output grew at fastest pace in 10 years

April data pointed to a further improvement of operating conditions in the Ireland manufacturing sector as output growth accelerated to the fastest for a decade. However, employment continued to fall during the month as firms attempted to improve efficiency. Companies were unable to pass on a strong rise in raw material costs to clients as competition remained intense.

The seasonally adjusted NCB Purchasing Managers’ Index (PMI) – an indicator designed to provide a single figure measure of the health of the manufacturing industry – rose slightly to 53.4 in April, from 53.0 in March, to signal a similarly solid improvement in business conditions as seen in the previous month.

The key driver of the gain in the headline index was a stronger increase in output in April. The rate of production growth was considerable, and the sharpest since April 2000. According to respondents, higher new business was the main factor behind the rise in output.

New orders grew markedly in April, despite the second successive monthly increase being weaker than that seen in the previous month. The expansion of overall new business was driven by external demand, with panelists noting strengthening demand from the United Kingdom.

Although new orders increased, manufacturers depleted backlogs of work. The reduction in outstanding business followed a marginal increase in the previous month. Employment fell in April, as has been the case throughout the past 29 months. However, the rate of job shedding slowed to the weakest since February 2008.

Input costs increased sharply in April, extending the current period of inflation to four months. A range of inputs including steel, paper and oil were all reported as costing more since the previous month. Despite the steep rise in input prices, manufacturers continued to lower their output charges as competition remained intense.

Stock shortages at suppliers to the Irish manufacturing sector led to a further lengthening of lead times, with the rate of deterioration the steepest since May 2006.

Higher new orders and the prospect of further improvements in coming months were the main factors behind a rise in purchasing activity. Despite this, pre-production inventories continued to fall as inputs were consumed by increased production.

Stocks of finished goods decreased substantially as firms utilized inventories to fulfill sales. The pace of reduction accelerated to the sixth-fastest in the series history.

Commenting on the NCB Republic of Ireland Manufacturing PMI survey data, Brian Devine, economist at NCB Stockbrokers, said: “In March, it was our view that the Irish economy had bottomed in December/January, the last two NCB manufacturing PMIs, by breaching the 50 mark have confirmed this view. It is encouraging to see that not only is output continuing to expand, but also that new orders are continuing to expand. It is no surprise that the employment index continued to decrease in April, extending the current sequence of job shedding to twenty-nine months. We don’t expect significant job creation until 2011, but having said that it is encouraging to note that the pace of reduction in employment eased for the third month running to its slowest rate since February 2008. We do expect the unemployment rate to tick up towards 13.8% as job creation will be unable to absorb the increase in the labor force. It is a positive though that net job shedding appears to be nearing an end, which combined with emigration, has seen the unemployment rate remain stable at 13.4 percent for the last number of months.”