May data signaled another marked deterioration of operating conditions in the Ireland manufacturing sector. Although output, new orders and employment all decreased at weaker rates, they still fell sharply.
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 to 39.4 in May, from 36.1 in April, indicating that business conditions continued to deteriorate. However, the rate of
contraction eased for the third consecutive month to its weakest since last October.
Output decreased for the fifteenth consecutive month as the wider economic downturn continued. That said, the pace of reduction eased for the third month in a row to its slowest since October 2008. The rate of decline of new business also slowed in May, but still remained sharp overall. Around 35 percent of panelists reported falling new business during the month. The global economic downturn impacted negatively on new export orders, especially those from the United Kingdom.
Falling new orders led to increased spare capacity at Irish manufacturers, and consequently backlogs of work fell considerably.
Lower demand was also a key factor behind the latest sharp reduction in purchasing activity. Input buying fell for the eighteenth month in a row. Preproduction inventory depletion continued in May.
The severe decrease was the second-fastest in the series history, slower only than the record seen in the preceding month. Stocks of finished goods also declined at the second-sharpest pace in the history of the survey, extending the current period of reduction to 13 months.
As manufacturers adjusted to lower output requirements, employment fell sharply again in May. However, the rate of job shedding eased to its slowest since November 2008.
Input prices fell at a considerable pace over the month. According to respondents, the latest reduction was in part due to increased competition among suppliers, as well as fragile demand for inputs. Increased competition was also a key factor behind May’s decline of output charges, as Irish manufacturers were forced to offer discounts in order to secure new business. The pace of reduction remained substantial, despite easing on the preceding month’s series record.
The pace of lead time shortening accelerated in May to the third-fastest in the series history, largely as a result of spare capacity amongst suppliers.
Commenting on the NCB Republic of Ireland Manufacturing PMI survey data, Brian Devine, economist at NCB Stockbrokers, said: “The manufacturing PMI rose for the fourth consecutive month confirming that the pace of decline in manufacturing has eased, but with the index still below 50 the sector is continuing to contract. The new export orders index increased from 41.2 to 43.4. This is an important reading and we will watch this carefully for signs that Ireland and its manufacturing sector are being dragged up by an upturn in economic activity with our main trading partners expected to return to growth by the end of the year. With the domestic economy so weak, look for the new export orders component of the PMI to breach the 50 mark before the headline PMI will follow suit.”
