Source: Markit Economics

Irish manufacturing PMI  (Purchasing Managers’ Index) data shows output fell back slightly in December and employment declined. New orders continued to rise, albeit at a slower pace.

The seasonally adjusted NCB PMI - - an indicator designed to provide a single figure measure of the health of the manufacturing industry - - posted 48.8 in December, unchanged from that registered in the previous month. Business conditions in the sector have now deteriorated for just over two years.

Production at Irish manufacturing firms contracted marginally in December, in contrast to the previous month where a slight expansion was recorded. The decline in output largely reflected the fragility of the wider Irish economy.

Production decreased despite a second consecutive rise in new business as demand showed further tentative signs of improvement. However, clients remained reluctant to commit to new spending, resulting in a slower pace of new order growth. New export business also increased, at a slightly faster pace than overall new orders.

With demand remaining fragile, firms continued to transfer spare capacity to deplete backlogs of work. Outstanding business has decreased in each month since July 2006.

Employment also fell in December, extending the current sequence of job cuts to twenty-five months. Firms continued to restructure workforces in line with demand that remained well below pre-crisis levels, although the latest reduction was the weakest since May 2008.
Intense competition amongst suppliers led to another fall in input costs. However, the pace of decline eased to the weakest in the current sequence of reduction as some raw material prices increased. Strong competition was also a key factor behind a drop in output prices, which fell markedly during December.

Today's report says that for the first time since December 2007, average vendor performance deteriorated, although only marginally. Insufficient stocks at suppliers was the main driver of lengthening lead times.

As has been the case for over two years, purchasing activity declined as Irish manufacturers continued to streamline inventories. Stocks of purchases fell solidly, although the pace of reduction slowed to its weakest since May 2008. Close to one-third of respondents signalled a drop in stocks of finished goods during December, leading to a further sharp decline in post-production inventories at the end of 2009.

Commenting on the survey data data, Brian Devine, economist at NCB Stockbrokers said: “Output at Irish manufacturing firms contracted marginally in December, in contrast to the previous month where a slight expansion was recorded.

The decline in output largely reflected the fragility of the wider Irish economy. New orders, driven by new export orders, expanded for the second month in a row reflecting the growing momentum in global economic activity.

Employment continues to be a major drag on the PMI index, falling for the twenty-fifth month in a row. While this is reflective of a cyclical downturn there will no doubt be a structural element to the decline in manufacturing employment. The challenge for the Irish economy is to create vigorous growth in services employment, as this is what will be needed to drive a sustained improvement in economic conditions. Although GDP expanded in Q3, GNP, the Irish owned component of output, was down once again.”

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.