Ireland manufacturing output rose at sharpest pace since June 2006

March data signaled that operating conditions in the Ireland manufacturing sector improved for the first time in 28 months. Output rose sharply, as did new business, driven by series-record new export order growth.

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 strongly to 53.0 in March, from 48.6 in February. The reading marked the greatest improvement in business conditions since September 2007.

Irish manufacturing output increased considerably in March, ending a three-month sequence of contraction. Moreover, the rate of expansion was the fastest in forty-five months. The rise was driven by higher new business.

New orders grew for the first time in three months, and at the steepest pace since September 2007. Panelists indicated that demand had strengthened in domestic as well as foreign markets. New export orders increased more quickly than total new business. Furthermore, new orders from overseas rose at the fastest pace in the series history.

The steep rise in new business at Irish manufacturers led to a slight build up of work-in-hand in March. Higher outstanding business has been recorded only twice since backlogs data were first collected in September 2002.

Although demand strengthened during March, this was not sufficient to lead to an increase in employment. Staffing levels fell modestly, but at the slowest pace since March 2008.

For the third month running in March, input costs rose as raw material prices increased. The rate of inflation accelerated to the sharpest in a year-and-a-half. Despite this, charges continued to fall, with clients requesting discounts. However, the latest reduction in output prices was the weakest in the current sixteen-month sequence of decline.

Supplier lead times lengthened, reflecting insufficient stocks to cover a marked increase in purchasing activity among Irish manufacturers. Input buying rose for the first time since November 2007 in response to higher new orders. Moreover, the rate of growth was the fastest for a decade.

Despite the rise in purchasing activity, pre-production inventories decreased as stocks of inputs were utilized in increased production. Post-production inventories also fell during March as sales, and subsequently deliveries increased sharply. The latest reduction in stocks of finished goods was the sharpest since last November, and extended the current sequence of decline to 23 months.

Commenting on the NCB Republic of Ireland Manufacturing PMI survey data, Brian Devine, economist at NCB Stockbrokers, said: “The Irish manufacturing PMI finally broke the 50 mark, reaching its highest reading since September 2007. The most encouraging thing about this month’s survey was that panelists indicated that demand had strengthened in domestic as well as foreign markets. New export orders raced ahead at the strongest rate since the survey began in 1998. More generally though, new orders increased at their most rapid rate in 30 months providing evidence that the Irish domestic market may also have bottomed.”