Irish manufacturing growth slows amid sluggish demand

AIB's purchasing managers index shows the slowest upturn in overall manufacturing conditions since the start of the year

Respondents to AIB's latest PMI cited weakness in European export markets as the key driver of the fall in export orders.

Irish manufacturing growth continued to slow in October with the month’s purchasing managers index (PMI) showing the slowest upturn in overall manufacturing conditions since the start of the year on the back of sluggish demand conditions and lower backlogs of work.

The manufacturing PMI had a reading of 50.9 during October, down from the 51.8 recorded in September. The PMI is a composite single-figure indicator of manufacturing performance. It is derived from indicators for new orders, output, employment, suppliers’ delivery times and stocks of purchases.

Any figure greater than 50.0 indicates overall improvement of the sector. The Irish manufacturing PMI is conducted by AIB.

This reading is below that of the US, recorded at 52.2, but ahead of the rest of the eurozone at 49.6 and the UK at 50.

Slowest upturn since January

The PMI said this “signalled the slowest upturn in overall manufacturing conditions since the current phase of improvement began in January”.

Chief economist at AIB David McNamara said the modest improvement in manufacturing conditions in October “was driven by gains in new orders and employment, while output growth stalled and inventories decreased more quickly”.

However, Mr McNamara said that output “stagnated” in October with “respondents citing subdued demand conditions”.

“This was also reflected in the continued fall in export orders, albeit total new orders continued to expand at a marginal pace.”

The October data indicated that production volumes stagnated across the Irish manufacturing sector, which ended a nine-month period of sustained expansion.

“Survey respondents suggested that there had been little change in output requirements in September due to sluggish demand conditions and lower backlogs of work,” it said.

The PMI said respondents also cited weakness in European export markets as the key driver of the fall in export orders.

Manufacturers noted intense competition for new business and ongoing headwinds to order books leading to lower export sales.

It said the latest reduction in new orders from abroad was the fastest since May. Mr McNamara said: 

Encouragingly, employment continued to expand, extending the current period of growth to 11 months. However, the pace of growth eased as some firms noted skill shortages holding back hiring. 

The latest upturn in employment was still the weakest since May.

“Manufacturers noted that skills shortages and a lack of available candidates were again constraints on staff hiring. Some survey respondents also noted that subdued demand had weighed on recruitment.”

Mr McNamara said there was also a “sharp deceleration in input and output price inflation”.

“Output price inflation decelerated to its slowest pace in 17 months, linked to lower input costs and intense competitive pressures,” he said.

Pressure from wages and energy costs 

The PMI noted anecdotal evidence which suggests that higher wages and energy prices continued to push up overall input costs but at the same time, a number of manufacturers noted lower raw material prices.

The PMI said that manufacturers’ business outlook remains upbeat for the year ahead but confidence has slipped to a three-month low.

“Around 45% of the respondents predict a rise in output levels during the year ahead, down slightly from 48% in September, while 9% expect a decline,” Mr McNamara said.

Some businesses cited new product launches and entry into new overseas markets as potential drivers of growth over the year ahead, while some firms also commented on hopes of a turnaround in sluggish global economic conditions.