Bad weather fails to halt growth in manufacturing

THE IRISH manufacturing sector continued to strengthen in the final month of 2010, despite the inclement weather, according to the latest NCB Purchasing Manufacturing Index (PMI).

The index – a key economic indicator which measures the health of the manufacturing sector – rose for the third consecutive month to 52.2 in December, up from 51.2 the previous month. This represents the highest level since May. A reading above 50 indicates that the manufacturing industry is expanding.

The upbeat insight into the health of Ireland’s manufacturing sector, came as similar figures from the UK show that British manufacturing activity grew at its fastest pace in 16 years.

The Markit/CIPS manufacturing Purchasing Managers’ Index rose to 58.3 in December up from 57.0 in November, and well above expectations. The index has been above the 50 mark since the middle of 2009.

“The UK manufacturing sector saw a truly spectacular end to 2010,” said Rob Dobson, senior economist at Markit and author of the survey.

“On the downside, the other stand-out figure was a survey record increase in average input costs. Manufacturers in sectors such as clothing, food products and chemicals were hit hard by demand exceeding supply for certain key inputs, as well as rising energy costs.”

The bullish data from Britain and Ireland, came a day after positive PMI figures from the EU and the US showed a growth in manufacturing activity.

The euro-zone manufacturing PMI rose to 57.1 in December up from 55.3 in November – 0.2 points higher than an earlier estimate. While Germany remained the best performer within the euro zone, the data showed a marked improvement in the “peripheral nations”, including Ireland.

Similarly, data released late on Monday showed that the US manufacturing sector grew in December for the 17th consecutive month, reaching 57.0 compared to 56.6 in November, hoisted by sturdy gains in new orders and production.

The improvement in Ireland’s manufacturing sector evidenced in the NCB Purchasing Manufacturing Index was driven by strong output growth and new orders. Firms were also hiring more workers for the first time in seven months, albeit the rate of job creation was only marginal. About 70 per cent of respondents left their workforces unchanged during the month.

NCB economist Brian Devine said the increase in employment levels, where it happened, was mainly due to increased workloads.

Purchasing activity rose for the tenth consecutive month in December, and at the steepest pace since April, mainly due to increased new order levels.

The rise in new orders was due primarily to an increase in export orders, particularly from Asia, the Middle East and Britain, reflecting the continuing importance of the export sector to the economy.

“The evidence from the PMI suggests that exports continue to perform robustly,” said Mr Devine. “With weak domestic demand and decent exports, this suggests that there will be a further positive contribution from net exports in the fourth quarter.”

The index also shows that output prices reduced last month despite sharp input cost inflation. The drop in prices was the third such drop in four month, as firms offered discounts in an attempt to stimulate new business.

Input price inflation remained high in December, despite easing slightly over the month. This was attributed largely to the cost of raw materials. – (Additional reporting, Reuters)