Source: Markit

The Irish manufacturing sector contracted again during July, with new orders dipping at a faster pace, while production fell for the second month running.

Falling demand and strong competition for new business led firms to raise charges only slightly, in spite of marked input cost inflation. Meanwhile, manufacturers reported that attempts to boost cash flow led them to deplete stocks.

The seasonally adjusted NCB Purchasing Managers’ Index (PMI) -- an indicator designed to provide a single figure measure of the health of the manufacturing industry -- dipped to 48.2 in July, from 49.8 in June. Although the reading signalled only a modest deterioration in operating conditions, the decline was the strongest since January 2010. Business conditions have now deteriorated for two successive months.

New orders fell for the second consecutive month in July amid declining client demand. Moreover, the rate of contraction accelerated over the month. In contrast to the trend for overall new orders, new business from abroad rose. However, the rate of growth was only slight, and the weakest in the current ten-month sequence of growth.

The fall in overall new orders was the main factor behind a second consecutive reduction in output. However, the rate of decline was only marginal, and slower than that seen in the previous month.

Backlogs of work decreased sharply in July, mainly reflecting a drop in new orders. Firms also reduced staffing levels, the third successive month in which that has been the case. That said, the rate of job cuts was only slight.

Increased oil and commodity prices led to a further rise in input prices. Despite easing for the fourth month running, the rate of cost inflation remained sharp, and faster than the long-run series average.

In response to higher input prices, manufacturers raised their output charges. However, strong competition and weakening demand meant that the rate of inflation was only slight.

Purchasing activity declined for the third month running, and at a solid pace that was the sharpest since February 2010. As demand for inputs decreased, suppliers were able to reduce delivery times for the first time in 20 months.

Attempts by firms to improve cash flow led to a marked reduction in stocks of purchases in July, with the rate of depletion the fastest since August 2010. Stocks of finished goods also fell, although the rate of decline was only slight. Post-production inventories have reduced in each month since May 2008.

Commenting on the NCB Republic of Ireland Manufacturing PMI survey data, Brian Devine, economist at NCB Stockbrokers said: “The NCB manufacturing PMI contracted for the second month in a row in July. Discouragingly the new orders component also contracted for the second month running, although export orders did expand once again. Exports have been carrying the economy for the last number of years and Ireland needs them to continue performing robustly to counterbalance the drag from the domestic part of the economy which has still not stopped contracting. To-date exports have held strong, growing by just under 8% according to the half-year export review from the Irish Exporters Association.”

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.