Source: Markit Economics

The Irish manufacturing sector moved closer to recovery in October as activity contracted at a slowing pace. Both output and new orders fell only slightly, and purchasing activity decreased at a markedly slower rate.

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 48.0 in October, from 46.6 in the previous month. This signalled that the rate of deterioration in business conditions eased to the weakest since February 2008.

Production at Irish manufacturing firms declined for the twentieth month running in October. However, the rate of contraction was the slowest seen during that sequence.

Consistent with the trend for output, new business decreased at the slowest pace in twenty months of reduction. Anecdotal evidence was split between those firms reporting stronger demand, and those that continued to report a fall.

The survey shows new business from abroad contracted slightly in October, after rising marginally in the preceding month. Panellists indicated that the relative strength of the euro compared with sterling led to falling new business from UK sources.

Spare capacity in the sector continued to be signalled by further declines in backlogs and employment. Outstanding business has now fallen for forty consecutive months. Along with workforce restructuring, attempts to reduce costs were a key factor behind the latest drop in staffing levels, which was marked.

Input costs fell further in October as the comparative weakness of sterling made UK produced inputs relatively less expensive. Although the rate of decline in output charges eased to its weakest since January, it was still substantial. According to panellists, pressure from both clients and competitors to reduce factory gate prices remained intense.

Supplier lead times shortened marginally in October, and at the slowest pace of the current seventeen-month period of improvement.

Although purchasing activity fell again during the month as demand continued to contract, the latest reduction was the weakest since February 2008. Attempts to streamline inventories led to a decreased in stocks of purchases for the twenty-third month running in October.

Stocks of finished goods declined markedly during the month, extending the current sequence of reduction to eighteen months. However, the latest fall was the slowest since September 2008.

Commenting on the survey data, Brian Devine, economist at NCB Stockbrokers said: “The output and new orders components very nearly breached the sacred 50 mark in October. New export orders did however fall away marginally after breaching 50 last month. The fall in new export orders reflected sterling weakness which is continuing to squeeze the manufacturing sector. With UK exports under pressure it is a welcome sign that the US economy posted impressive GDP growth in Q3, even when account is taken of their scrappage scheme. With global economic activity gathering momentum we are still hopeful that the Irish economy will begin growing in Q4 of this year and the latest PMI was comforting in this regard.”

The NCB Republic of Ireland Manufacturing PMI (Purchasing Managers’ Index) is produced by Markit Economics. The report features original survey data collected from a representative panel of around 300 companies based in the Republic of Ireland manufacturing sector. The panel is stratified by Standard Industrial Classification (SIC) group, based on the industry contribution to GDP.