As restrictions are lifted, Ireland's manufacturing sector continues to surge with new orders

Firms are building up safety stocks in expectation of future price increases and shortages

The sector continued to add to the size of its workforce, with employment rising for a tenth month running.

Ireland's manufacturing sector maintained its rapid growth in July with orders reaching a new record for the third month running.

Output rose rapidly but was partly constrained by ongoing supply shortages. Cost pressures remained severe, and output price inflation accelerated to a new survey record.

The AIB Manufacturing Purchasing Managers’ Index (PMI) recorded a level of 63.3 in July, slightly down compared to June but still consistent with a very strong rate of improvement in manufacturing with the sector recording strong growth for the fourth consecutive month.

With customer spending continuing to rebound as Covid-19 restrictions were lifted, manufacturers' rate of expansion was the third-strongest on record.

"The Irish data remain broadly in line with strong PMIs from some of the key advanced economies. UK, eurozone and US flash readings of 60.4, 62.6 and 63.1, respectively provide further evidence of the upward momentum being maintained in the sector," Oliver Mangan, AIB Chief Economist, said.

"The sub-components of the Irish PMI survey all point to an ongoing strong improvement in business conditions in the sector. New orders recorded its third straight record high, aided by a very strong performance from new export orders as well as ongoing strength in domestic orders. The sector continued to add to the size of its workforce, with employment rising for the tenth month running."

Shortages

However, the survey shows that capacity constraints remained very much in evidence. There was a new record rate of increase in backlogs of work, with supply shortages contributing to the difficulties that firms are facing. 

Wide-ranging raw material shortages and insufficient shipping capacity continued to impact prices in July. Input prices rose at their third-highest pace ever and the passing on of these higher costs to customers saw output prices register another big jump.

The survey found that purchasing activity expanded at a record pace last month as firms built safety stocks in expectation of future price increases and shortages.

Separate data announced yesterday shows Euro-area factories are hiring new workers at record pace to keep up with persistently strong orders.

Job creation was particularly pronounced in Germany and Austria last month, according to an IHS Markit survey of purchasing managers. Manufacturers continued to face substantial supply-chain bottlenecks and passed on rising costs to customers.

"Manufacturers and their suppliers are struggling to raise production fast enough to meet demand, driving prices ever higher,” said Chris Williamson, an IHS Markit economist. “Capacity constraint indicators continue to flash red.” New orders jumped in July, fueling a considerable increase in backlogs of work. Widespread shortages of materials and poor transport availability produced record gains in input costs and selling prices.