Some encouragement from latest manufacturing figures

The rate of decline in the output of the Irish manufacturing sector is beginning to slow, according to figures released today.

The decline in new orders was steeper than in the preceding month and jobs were again cut sharply, however.

The seasonally adjusted NCB Purchasing Managers’ Index (PMI) registered 44.0 in August, slightly higher than July’s reading of 43.7. A reading above 50 indicates an overall increase, below 50 an overall decrease.

Although August’s fall in production was the slowest in a year, it remained marked as new orders continued to decrease. Production at Irish manufacturing firms has now declined in each of the past 18 months.

New business fell sharply during August, and at a faster pace than seen in July. Demand continued to decrease, with clients postponing purchasing decisions given the wider recession. New orders from overseas also contracted sharply, albeit at a slightly weaker pace than in the preceding month.

As new orders continued to decrease, firms utilised spare capacity to complete existing work. Consequently, backlogs fell sharply again in August.

Employment also declined sharply as firms adapted to lower demand and reduced workloads. However, the latest fall in staffing levels was the slowest since May 2008.

Increased competition for work at the suppliers of Irish manufacturers was the principal cause of the latest sharp fall in input costs. Output charges also decreased at a substantial pace during August, as firms attempted to stimulate demand. There were also reports that increased pressure from both clients and competitors were key factors reducing pricing power.

The pace of lead time shortening accelerated over the month as workloads at suppliers fell. Average vendor performance has improved in each month since June 2008.

Purchasing activity declined at the steepest pace since May during August, extending the current period of reduction to 21 months. The pace at which stocks of purchases fell was also faster than in the preceding month as Irish manufacturers attempted to streamline inventories.

For the 16th consecutive month, post-production inventories decreased, albeit at the slowest pace since February. The latest fall largely reflected lower output requirements, while in some cases sales had exceeded output over the month.

“The main boost to the headline index came from the employment component which showed that the pace of declines in employment had eased in the manufacturing sector,” said NCB Stockbrokers economist Brian Devine.

“While it is encouraging to see the pace of job-shedding slowing it is disappointing to note that the pace of contraction in new orders increased for the second month running.

“While Irish industrial output and Irish merchandise exports have been buoyed by the particularly impressive performance of the chemical and pharmaceutical sector, the reality is that most other sectors have struggled.

“A more broad-based improvement in manufacturing is needed to boost the Irish economy as such it is disappointing that new orders declined on the month.”

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