Ireland manufacturers see first rise in staffing levels in 2.5 years

May data signaled a further improvement of operating conditions in the Ireland manufacturing sector, as output and new business both continued to expand. Moreover, rising workloads led to the first increase in staffing levels in 2.5 years.

The seasonally adjusted NCB Purchasing Managers’ Index (PMI) – an indicator designed to provide a single figure measure of the health of the manufacturing industry – increased for the fourth month running to 54.1, to signal a solid strengthening of business conditions. Furthermore, the latest improvement was the most marked since September 2007.

Manufacturing production increased for the third consecutive month in May, and at a similarly considerable pace to that seen in April. The rise in output largely reflected new order growth.

New orders also rose for the third month running. Although the rate of growth eased slightly, it remained marked. New export business increased at a much faster pace than total new orders, with panelists reporting new business growth from the US and Asia. Outstanding workloads continued to fall in May, suggesting that spare capacity remained in the sector. However, the rate of backlog depletion was relatively modest.

Rising workloads led to the first instance of job creation in the sector since November 2007, although the increase was only slight as a number of firms attempted to improve efficiency.

Input cost inflation accelerated sharply in May, extending the current sequence of rising prices to five months. A number of raw materials were reported as costing more during the month, including aluminum, oil and steel. Consequently, Irish manufacturers raised their output charges for the first time since November 2008.

A shortage of stocks at suppliers was the principal cause of a further deterioration in vendor performance in May. The marked lengthening of lead times was only slightly weaker than April’s 47-month record.

Purchasing activity increased for the third month running, albeit only modestly. Higher demand was the main factor driving the rise. However, stocks of purchases continued to fall as inputs were utilized in production. Input inventories have decreased throughout the past 2.5 years.

Stocks of finished goods fell substantially during May, with the rate of decline equal to the ten-month high seen in the preceding month. Anecdotal evidence suggested that the reduction in stocks largely reflected increased sales.

Commenting on the NCB Republic of Ireland Manufacturing PMI survey data, Brian Devine, economist at NCB Stockbrokers, said: “The PMI rose once again in May on the back of increased output, new orders and rather surprisingly employment. The employment index within in the PMI breached the 50 mark for the first time since November 2007. Just to clarify a breach of 50 means, that of those firms surveyed more increased employment in May than cut it. 17.1 percent of firms increased employment, with 11.3 percent cutting it and 71.6 percent holding employment steady. Manufacturing sector employment is far smaller than services employment, but nonetheless this is a really positive development.”