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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
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
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
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.