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News : Irish Economy Last Updated: May 2, 2013 - 8:38 AM

Irish Economy: Manufacturing slumps; Employment dips at sharpest rate since 2011
By Finfacts Team
May 1, 2013 - 7:27 AM

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The Irish manufacturing sector moved further into contractionary territory during April, with output and new orders each declining for the second month running amid signs of deteriorating economic conditions. Falling workloads in turn led firms to reduce employment and purchasing activity. Meanwhile, input cost inflationary pressures eased to the weakest in nine months. Employment fell at sharpest rate since September 2011.

The mainly US-owned pharmaceutical and medical devices sector accounts for about 60% of merchandise exports and drug patent expirations are clearly having an impact.

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 to 48.0 in April, down from 48.6 in March to signal a second successive worsening of business conditions in the Irish manufacturing sector. The latest deterioration was the sharpest since September 2011.

Irish manufacturing output fell at a solid pace in April, and one that was the steepest since August 2009. Panellists reported that weakening market demand had been the main factor leading to lower production.

New orders decreased for the third time in the past four months, albeit only modestly. According to respondents, deteriorating economic conditions in Ireland and across Europe had been behind the fall.

New export orders also declined, despite some reports of growth in sales across Asian markets. Manufacturers lowered employment at a solid pace as leaving staff were not replaced in some cases.

The rate of job cuts was the fastest in 19 months. Despite this, spare capacity was still evident in the sector as backlogs of work fell at a substantial and accelerated pace.

Reports of lower commodity prices led the rate of cost inflation to slow to the weakest in the current nine-month sequence of rising costs. Meanwhile, output prices were reduced for the second month running. Those respondents that cut their charges over the month linked this to attempts to stimulate demand. However, the rate of decline eased slightly from the previous month.

Falling workloads led firms to reduce their purchasing activity during the month, with the rate of decline quickening to the sharpest since December 2011. Despite reduced demand for inputs, suppliers’ delivery times lengthened for the seventh time in the past eight months.

Anecdotal evidence highlighted a reluctance among manufacturers to hold inventories given weakening demand. Both stocks of purchases and finished goods decreased during April. Pre-production inventories fell at the fastest pace in three months, while the slight reduction in stocks of finished goods was little-changed from that seen in March.

Philip O’Sullivan, Chief Economist at NCB Stockbrokers said:  “The latest NCB Republic of Ireland Manufacturing PMI for April shows a second successive worsening of business conditions in the Irish manufacturing sector. The headline PMI reading, at 48.0, points to the sharpest decline since September 2011.

“Panellists cited weakening market demand, fueled by deteriorating economic conditions in Ireland and across Europe, as a key factor behind this softer reading. Output saw its fastest rate of decline since August 2009 and the sluggish New Orders (at a 15 month low), New Export Orders (in negative territory for a second successive month) and Stocks of Purchases (at a 3 month low) readings suggest that a near-term recovery in Output is unlikely.

“We have previously noted the mis-match between Input Prices, which registered a ninth successive monthly increase in costs during April, and Output Prices, where prices fell for the fourth time in the past six months during April (albeit only marginally). This is a further headwind for firms in the Irish manufacturing sector, although the recent decline in commodity prices raises the prospect of these pressures abating in the short term.

“Employment had been a highlight of the Manufacturing PMI during 2012, with readings above the key 50 level in each of the last 10 months of last year signalling a pick-up in job creation in this segment. However, April saw the fastest rate of decline in manufacturing employment since September 2011, while this sub-component has recorded sub-50 readings in 3 of the first 4 months of 2013.

“When the previous PMI reading (for March 2013) revealed an end to an impressive 12 month sequence of growth for the manufacturing sector, we described it as a 'disappointing release,' adding that we would be monitoring 'to see if any of these trends have persisted into Q2, paying particular attention to see if the elevated macroeconomic uncertainty…weighs on survey findings.' On the evidence of today's report, Q2 has gotten off to an uninspiring start for the Irish manufacturing sector.” 

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.

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