Ireland manufacturing PMI improves 2.5 points to 50.9

Business conditions in the Ireland manufacturing sector improved in October as new business rebounded and output growth accelerated. Although input costs rose sharply again over the month, firms continued to reduce charges in the face of strong competition.

The seasonally adjusted NCB Purchasing Managers’ Index (PMI) – an indicator designed to provide a single-figure measure of the health of the manufacturing industry – moved back above the 50.0 no-change mark in October, posting 50.9 from 48.4 in the previous month. Business conditions have now strengthened in seven of the past eight months.

Mirroring the trend of the PMI, new business increased in October following a decline in September. The rise mainly reflected higher new orders from export markets. New business from abroad grew at a faster pace than overall new orders, with panelists reporting increased orders from the United Kingdom in particular. The latest rise in new export business was the fastest since June.

Higher new orders led to an eighth successive increase in Irish manufacturing production. Albeit marginal, the rate of expansion was the fastest in three months.

Spare capacity remained evident in the sector as outstanding work fell again. Employment also decreased, but at a fractional pace that was the weakest in the current five-month sequence of job shedding. Hiring in response to increased new orders was cancelled out by attempts to reduce costs.

Input cost inflation surged in October to the strongest in five months. Anecdotal evidence indicated that higher raw material costs were the key source of inflation. Despite the increase in input prices, output charges decreased slightly for the second month running as intense competition largely prevented price rises.

Reduced capacity at suppliers and a shortage of raw materials led to a marked deterioration in average vendor performance in October. Lead times have lengthened in each month since December 2009.

Pressure on suppliers’ intensified due to a sharper increase in input buying during the month. According to respondents, purchasing was raised in order to support production.

In spite of the rise in purchasing, pre-production inventories at Irish manufacturers continued to fall in October. Stocks of purchases have now decreased for nearly three years.

Stocks of finished goods were also depleted, extending the current sequence of decline to 2.5 years, mainly reflecting higher sales. However, the pace of reduction in inventories was the slowest in a year.

Commenting on the NCB Republic of Ireland Manufacturing PMI survey data, Brian Devine, economist at NCB Stockbrokers, said: “The PMI rose to 50.9 in October after falling to below 50 in September. Importantly, the new orders index rebounded strongly from 47.3 in September to 51.1. The export sector has been the driving force of the Irish economy during the current crisis. It is thus significant to note that new export orders surged from 45.9 to 54.9 in October. The export sector must continue to perform robustly to counterbalance the continued weakness in the domestic economy and will enable the economy to better absorb the forthcoming fiscal cuts.”