Ireland manufacturing PMI dropped 2.3 points in June to 51.8

Although operating conditions in the Ireland manufacturing sector continued to improve during June, latest data suggested that the rebound lost some momentum over the month. Both output and new orders increased at weaker rates, and employment decreased modestly.

The seasonally adjusted NCB Purchasing Managers’ Index (PMI) – an indicator designed to provide a single figure measure of the health of the manufacturing industry – dropped to 51.8 in June, from 54.1 in the previous month, to signal the weakest strengthening of business conditions in the current four-month sequence of improvement.

Irish manufacturing production increased for the fourth consecutive month in June, and at a marked pace. However, the rate of growth eased to the weakest in the current sequence of expansion. According to respondents, rising new business was the main factor driving output growth.

New orders also increased at a slower pace in June. Overall new business grew at a much weaker rate than new export orders, suggesting that the rise was driven by external demand.

Outstanding business decreased for the third month running, although the latest decline was only marginal as delivery delays prevented firms from working through orders. After rising slightly in May, employment fell modestly during June.

Input cost inflation remained sharp during the month, despite easing since May. Higher raw material costs were the main factor behind the latest increase, while the weakness of the euro added to inflationary pressures. Irish manufacturers were largely unable to pass on higher input costs to clients as pressure from both customers and competitors restricted their pricing power.

Suppliers’ delivery times lengthened at the strongest pace in nearly six years as raw material shortages led to a seventh consecutive deterioration in vendor performance.

As output and new business rose in June, firms increased their input buying accordingly. That said, the fourth consecutive expansion of purchasing activity was the slowest in this sequence.

Despite higher input buying, stocks of purchases continued to fall as inputs were consumed by rising production. Pre-production inventories have decreased in each month since December 2007. Stocks of finished goods declined substantially, albeit at the slowest pace in eight months. Anecdotal evidence suggested that post-production inventories had been utilized to fulfill order requirements.

Commenting on the NCB Republic of Ireland Manufacturing PMI survey data, Brian Devine, economist at NCB Stockbrokers, said: “The PMI continued to signal that firms are expanding output albeit at a slower pace than in May. The output index fell from 58.0 to 54.8 while new orders declined to 51.7 from 54.9. The employment index which had signaled expansion in May, once again fell back to signal contraction in the employment market. The increase in the employment index last month had been a surprise and we do not expect net job creation until 2011.”