Irish manufacturing ends its six-month slump

The figure from the AIB Irish Manufacturing Purchasing Managers’ Index is derived from indicators for new orders, output, employment, suppliers' delivery times and stocks of purchases

Overseas demand was a major contributor to the uplift in sales with new export orders expanding for the first time since May last year.

Irish manufacturing expanded for the first time in six months following an increase in new orders, particularly from overseas, in contrast to trends seen in other countries, new data from AIB shows.

The findings come from the AIB Irish Manufacturing Purchasing Managers’ Index (PMI) which includes Irish-owned factories selling products into the home market as well as multinationals — such as the large number of pharma giants that export to global markets.

The index is a single-figure indicator of manufacturing performance with any figure greater than 50.0 indicating an overall improvement in the sector. It is derived from indicators for new orders, output, employment, suppliers' delivery times and stocks of purchases.

It is one of numerous similar surveys carried out across almost every economy in the world.

In August, the Irish index grew to 50.8 compared to the 47.0 recorded in July. Overseas demand was a major contributor to the uplift in sales with new export orders expanding for the first time since May last year.

This rate of expansion is only marginal overall and weaker than the historical average, but despite this, the expansion in order book volumes was in contrast to the declines posted in each of the five previous survey periods and the second-strongest over the past 15 months.

Oliver Mangan, chief economist with AIB, said the increase in manufacturing in Ireland is in contrast to trends elsewhere as manufacturing remains weak in the eurozone and Britain. During July, the PMI in Britain stood at 45.3 while the rest of the eurozone’s PMI was at 42.7.

"A pick-up in new orders was a key driver of the improvement in Irish manufacturing in August. They rose for the first time in six months, with particularly strong growth in new export orders, which ended a 14-month sequence of declines," Mr Mangan said. 

Firms attributed the rebound to better demand conditions as the pick-up in new orders saw manufacturing production move very close to stabilisation during August. 

“Confidence about the outlook for the sector in the year ahead rose to its highest level in six months. It will be interesting to see, though, if the expansion in Irish activity in August can be sustained given the ongoing weakness of manufacturing globally,” Mr Mangan said.

Inflationary pressures continued to ease in the sector with input prices falling for the fifth straight month driven by falling raw material and energy costs. However, the rate of decrease was only slight and the weakest in this period.

While manufacturers sought to pass on some of the cost savings to clients — leading to the fourth month of falling sale prices — the rate of discounting has slowed since July and was only marginal overall in August.

Firms responded to higher volumes of new work by adding to their headcounts during August.

AIB said the renewed upturn in overall demand meant that manufacturing production neared the point of stabilisation during August. Output levels fell only fractionally and at the weakest rate in the current six-month sequence of decline.

According to the AIB, firms are optimistic that the upward trend will continue.