Manufacturing activity picks up despite caution in sector

Irish manufacturing activity strengthened in August despite the unsettled international backdrop stemming from Brexit.

However, the latest monthly barometer noted that manufacturers remained cautious about the near-term outlook.

Investec’s headline purchasing managers’ index (PMI) rose from 50.2 to 51.7 in August, staying above the 50 line that separates growth from contraction.

The Irish data was published as manufacturers across Asia and Europe showed few signs of returning to health in August, as demand remained fitful at best.

However, British manufacturers staged one of the sharpest rebounds on record in August, a post-Brexit surprise that could prompt the Bank of England to rethink the need to cut interest rates again if other surveys confirm the trend.

The recovery far outstripped all economists’ forecasts, delivering the strongest signal yet that Britain’s economy is performing better than initially feared after the June referendum vote to leave the European Union.

The UK PMI jumped to a 10-month high of 53.3 in August after tumbling to a three-year low of 48.3 in July in the immediate aftermath of the referendum.

Survey compiler Markit said reduced sales to Britain were partly to blame for slowdown in orders in the euro zone. Much of what expansion there was remained focused in the north, and the survey hinted at a further slowdown this month. Germany, the Netherlands and Austria again provided the main power. France and Italy showed declines, Greece stagnated and Spain saw its worst growth since mid-2013.

Markit’s PMI for the bloc dipped to 51.7 in August from 52.0, below a flash estimate of 51.8. An index measuring output came in at 53.3, below July’s 53.9.

Factory activity in the world's largest economy, the United States, contracted in August for the first time in six months as new orders and production tumbled.

The Institute for Supply Management said its index of national factory activity fell 3.2 percentage points to a reading of 49.4 last month. That was the first contraction since February. The index remains above the 43.2 threshold that is associated with a recession.

In China, the world’s second-biggest economy the official PMI ticked up to 50.4 in August, compared with the previous month’s 49.9. But the private Caixin PMI, which covers a greater share of smaller firms, showed activity stagnated last month.

In Ireland, there was a welcome return to growth in the new orders index following the contraction in July – the first in three years. However, the report noted the growth here was only slight, with roughly three-quarters of panellists signalling either unchanged or lower customer demand.

The sub-index for new export orders contracted for the third time in the past four months, with some panellists reporting a drop in new work from UK clients. However, this was countered by higher new orders from the US and continental Europe.

The backlogs-of-work index fell for an eighth successive month and at the fastest pace since June 2013.

Close to 26 per cent of respondents signalled a fall in outstanding business amid muted new-order growth.

Staffing levels rose again in the Irish manufacturing sector during August. Employment has now increased in each of the past 39 months, with the latest solid rise marginally quicker than that seen in July. Panellists mainly linked job-creation to rising new orders.

On the margin side, the rate of cost inflation quickened markedly during August, with higher commodity and food prices blamed for this.