Manufacturing figures give cause for optimism
The rates of decline in the Irish manufacturing sector slowed in June, according to new figures released today.
The seasonally-adjusted NCB Purchasing Managers’ Index (PMI) rose to 42.5 in June, from 39.4 in May.
Although the sector continued to deteriorate at a considerable pace at the end of Q2, June’s contraction was the slowest since last September. Any figure below 50 indicates a contraction.
This was the 16th month in a row where output at Irish manufacturers decreased.
The fall in June remained marked as fragile demand (particularly from domestic sources) continued to negatively impact on new orders.
New business contracted at the slowest pace in the current 16-month period of contraction, however.
New export business decreased at a weaker pace than overall new orders, although the reduction was still solid. The relative strength of the euro against sterling made new orders from the UK harder to secure.
With new business continuing to decline, manufacturers were able to utilise spare capacity through the completion of existing projects. As a result, backlogs fell at a substantial pace.
Staffing levels decreased considerably as firms reduced workforce numbers in response to falling production requirements, as well as to reduce costs. Employment has now declined in each of the past 19 months.
As demand for inputs remained weak, suppliers offered discounts in order to boost demand. Consequently, input prices fell sharply, albeit at the weakest pace so far in 2009.
Output charges decreased substantially as competition amongst manufacturers increased. Moreover, the pace of reduction accelerated from the previous month.
Input buying amongst Irish manufacturers decreased further in June as firms remained cautious when making purchasing decisions.
However, the latest reduction was the slowest since last August.
Stocks of purchases fell considerably, in line with lower new business levels.
Postproduction inventories also decreased, and at the fourth-fastest pace in the series history, reflecting lower production.
Commenting on the survey data, Brian Devine, economist at NCB Stockbrokers said: "The pace of decline in Irish manufacturing continued to moderate as the NCB manufacturing PMI rose for a fourth consecutive month in June.
"The new export orders index rose by 3 points to 46.5 - as stated before we believe that this index is likely to breach the 50 mark before the headline PMI given the relative weakness of the Irish domestic economy.
"Even when the PMI does breach the 50 mark it is highly unlikely to be matched by a rise in employment in the sector as firms are unlikely to add to employment rapidly (the jobless recovery), and the more labour-intensive traditional sector is likely to remain under pressure for longer than the modern sector.”
