Source: Markit Economics

Irish manufacturing output rose for the first time in 21 months in November. Employment continued to fall, but at the slowest rate for a year-and-a-half.

The seasonally adjusted NCB Purchasing Managers’ Index (PMI) - - an indicator designed to provide a single figure measure of the health of the manufacturing sector - - rose slightly in November to 48.8, from 48.0. This indicated that overall operating conditions in the Irish manufacturing sector continued to deteriorate. Operating conditions have now worsened throughout the past two years.

The deterioration of business conditions continued despite rises in both output and new business, with each expanding for the first time since February 2008. Higher output largely reflected new order growth, which in turn was attributed to strengthening demand. New export orders increased for the second time in three months, and at a faster pace than overall new business.

Despite the expansion in new business, Irish manufacturers continued to complete outstanding work as the spare capacity resulting from the severe economic downturn remained evident.

Excess capacity was also signalled by a further marked reduction in employment during November, with the rate of job cuts broadly similar to those seen in each of the previous three months (though the weakest since May 2008).

Although the rate of lead time shortening increased over the month, the eighteenth successive improvement was only modest. Today's report said that with demand remaining fragile, firms were able to successfully negotiate input price reductions with suppliers. Consequently, input costs decreased for the thirteenth month running, and at a sharper pace than in October.

Output prices also declined at a faster pace in November as intense competition and scarce demand forced firms to offer discounts. Charges have fallen throughout the past year.

Irish manufacturers reduced purchasing activity as part of attempts to deplete inventories. Moreover, the rate of decline in input buying was steeper than that recorded in the previous month.

November data pointed to a further drop in pre-production inventories, extending the current period of reduction to two years. Stocks of finished goods also continued to fall as firms streamlined inventory holdings. In line with the trend for stocks of purchases, post-production inventories decreased more quickly in November than in October. Stocks of finished goods have now declined in each of the past nineteen months.

Commenting on the survey data, Brian Devine, economist at NCB Stockbrokers said: “While the headline PMI, a composite figure, did not breach the 50 mark both output and new orders expanded in November for the first time since February 2008. Increased demand, particularly from abroad, drove new orders higher on the month. The latest output readings are encouraging and corroborate what a number of other indicators have been showing; the Irish economy is stabilising and forming a base from which to grow.”

The NCB Republic of Ireland Manufacturing PMI (Purchasing Managers’ Index) is produced by UK-based 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.