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News : Irish Economy Last Updated: Jun 2, 2011 - 8:56 AM

Irish manufacturing slowed sharply in May; Growth of output/ new orders dipped; Export orders rose
By Finfacts Team
Jun 1, 2011 - 7:02 AM

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Source: Markit

The Irish manufacturing sector lost momentum in May, with growth rates of both output and new orders slowing sharply over the month, while firms cut employment and purchasing activity in response. On a more positive note, however, new export orders continued to expand strongly.

The seasonally adjusted NCB Purchasing Managers’ Index (PMI) – an indicator designed to provide a single figure measure of the health of the manufacturing industry – fell markedly to 51.8 in May, from 56.0 in the previous month. The reading indicated that while operating conditions in the sector strengthened again over the month, the improvement was the weakest since November 2010.

The drop in the PMI partly reflected a sharp slowdown in the rate of production growth in the sector. The latest increase in output was the weakest in six months, but was nevertheless still in line with the long-run series average.

In line with the trend seen for output, new order growth also eased in May, to the slowest since November 2010. The rise in overall new business was much weaker than that seen for new export orders. New business from abroad increased for the eighteenth time in the past nineteen months, and at a substantial pace.

Backlogs of work decreased, partly reflecting the slower rise in new orders. Moreover, the pace of depletion was the sharpest in the current three-month sequence of decline.

The marked slowdown in new order growth led a number of firms to reduce staffing levels during the month. Employment fell fractionally, following five successive monthly rises.

Manufacturers also lowered their input buying in response to a weaker rise in new business, ending a fourteen-month period of growth.

Despite a slight fall in demand for inputs, suppliers’ delivery times lengthened markedly. Vendor performance has deteriorated throughout the past year-and-a-half.

Average input prices rose sharply again in May, with panellists mentioning higher costs for oil and steel. Output prices rose solidly in response to input cost inflation, although the latest increase was the weakest in four months.

As has been the case in each month since December 2007, stocks of purchases at Irish manufacturers decreased. The solid reduction was faster than that seen in the previous month, with panellists noting delivery delays. Post-production inventories also fell, albeit only slightly. Stocks of finished goods have decreased in each month for more than three years.

Commenting on the NCB Republic of Ireland Manufacturing PMI survey data, Brian Devine, economist at NCB Stockbrokers said: "The NCB manufacturing PMI slowed sharply in May with the headline index, a composite, falling from 56.0 to 51.8. The output component fell from 58.7 to 52.6. The Irish manufacturing PMI is best seen as a measure of the underlying breadth of activity in the manufacturing sector given the methodology employed.

In contrast, the CSO official industrial output figures swing wildly from month to month given the size of certain firms in overall industrial output. The two series though when smoothed out mirror each other. Industrial output was down -0.45% q/q in Q1 2011 driven by underperformance in a few specific sectors. It is thus worrying that the PMI is dipping towards 50 once again suggesting that the pace of activity in the manufacturing sector generally is slowing."

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.

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