January data signaled a further deterioration of business conditions in the Irish manufacturing sector. Output fell at a sharper pace than in the month before, while new business contracted for the first time in three months. Unusually bad weather conditions made some roads impassable, impacting negatively on output, new orders and supplier performance.
The seasonally adjusted NCB Purchasing Managers’ Index (PMI) – an indicator designed to provide a single-figure measure of the health of the manufacturing industry – recorded 48.1 in January, lower than the reading of 48.8 in December, and signaling a further deterioration in operating conditions.
Falling demand was exacerbated by the freezing weather conditions in January, leading to the sharpest reduction of production in five months. Except for a slight rise in November 2009, output has contracted in each month since March 2008.
New business declined for the first time in three months during January, albeit at only a marginal pace. Clients were reluctant to commit to new projects given the fragility of the wider Irish economy.
New export orders increased during the month, in contrast to the trend for overall new business. Moreover, the rate of expansion accelerated to its fastest since October 2007 as firms expanded into new export markets.
Backlogs of work decreased, as has been the case in each month since July 2006. Lower outstanding business reflected the decline in overall new orders as firms transferred spare capacity to complete work-in-hand. Employment also fell markedly in January, and at the same pace as in December.
January data pointed to the first rise in input costs in fifteen months as commodity prices increased. In contrast, output prices continued to decrease due to intense competitive pressures. Charges fell at a slightly faster pace than in the previous month.
For the second month running, suppliers’ lead times lengthened, with unusually bad weather conditions the main reason for delays to deliveries. Vendor performance deteriorated to the greatest extent since October 2007.
The rate of decline in purchasing activity quickened to the fastest in four months. The fall was partly in response to lower workloads, as well as expectations of further declines in new orders over the coming months. Inventory depletion policies led to falls in both stocks of inputs and finished goods as firms attempted to maximize cash flow while future new business levels remained uncertain.
Commenting on the NCB Republic of Ireland Manufacturing PMI survey data, Brian Devine, economist at NCB Stockbrokers, said: “The January PMI shows that output falls in the manufacturing sector were more widespread than in December. The adverse weather conditions which prevailed in early January caused havoc with businesses on both the supply and demand front. Consequently it is difficult to decipher whether the fall in demand was solely due to the weather or simply that demand continues to remain weak. New orders fell marginally below the 50 mark but export orders continued to improve and reached their highest level since October 2007. Net exports are likely to continue giving the Irish economy a significant boost over the coming quarters. This combined with a moderation in the pace of decline in domestic demand should see GNP as well as GDP begin to expand in Q1 2010.”
