Ireland manufacturing PMI slips 0.4 points to 51.4

According to latest data, the rebound in the Ireland manufacturing sector lost momentum again in July. Both output and new business increased at slower rates, while employment fell for the second month running. Reduced capacity at suppliers led to the fastest lengthening of lead times in the history of the series.

The seasonally adjusted NCB Purchasing Managers’ Index (PMI) – an indicator designed to provide a single figure measure of the health of the manufacturing industry – fell for the second month running, posting 51.4 in July, down from 51.8 in the previous month. The reading indicated that although operating conditions in the sector improved, the rate of strengthening was the weakest in the current five-month sequence.

Output growth eased for the third successive month, and was only modest as new orders rose only slightly over the month. Where strengthening demand did lead to a rise in new business, firms increased production accordingly.

The weak expansion in overall new business was registered despite a solid increase in new export orders. However, the latest rise was the weakest since January.

There was further evidence of spare capacity in July, with both outstanding business and employment decreasing. Backlogs of work fell for the fourth month running, while the second consecutive reduction in staffing levels mainly reflected the fragility of demand.

Input costs rose sharply again in July, mainly as a result of increased raw material prices. However, the rate of inflation eased to the slowest in three months. Although input costs rose substantially, Irish manufacturers reduced their output charges under pressure from clients. The first decrease in output prices since April was only marginal as firms sought to pass on higher raw material prices.

Reduced capacity at suppliers led to the fastest deterioration in vendor performance in the history of the series, extending the current period of lengthening lead times to eight months.

Purchasing activity increased for the fifth month running in July. Despite this, stocks of purchases continued to decrease markedly. Pre-production inventories have fallen throughout the past 32 months.

Increased deliveries led to another steep reduction in stocks of finished goods at Irish manufacturers. Moreover, the rate of decline in July was sharper than that seen in the previous month. Stocks of finished goods have been depleted continuously since May 2008.

Commenting on the NCB Republic of Ireland Manufacturing PMI survey data, Brian Devine, economist at NCB Stockbrokers, said: “The PMI signaled that manufacturing firms continue to expand output albeit a slower pace than in the preceding number of months. The headline composite index is being dragged back towards the dividing 50 mark, which signals contraction, by new orders and employment. The fall off in employment after a brief foray into positive territory is unsurprising. New orders although slowing, are still expanding thanks to exports. New export orders increased solidly during July, extending the current sequence of rising new business from abroad to nine months. The principal cause of the latest expansion was strengthening global demand, while some panelists mentioned higher new orders from the U.K. in particular.”