Index shows fall in contraction rate of manufacturing

THE RATE of contraction in Irish manufacturing slowed over the last year but demand for new orders has continued to deteriorate, according to the NCB Purchasing Managers’ Index (PMI).

The index – which measures productivity – rose to 44 last month, up from 43.7 in July, but remained below the 50 mark, indicating growth for an 18th consecutive month.

Brian Devine, economist at NCB Stockbrokers, said: “While Irish industrial output and Irish merchandise exports have been buoyed by the particularly impressive performance of the chemical and pharmaceutical sector, the reality is that most other sectors have struggled.”

“A more broad-based improvement in manufacturing is needed to boost the Irish economy” was needed, he said, as poor domestic demand and weak sterling make new orders difficult to secure.

A strong performance by the multinational-dominated pharmaceutical and chemical sector has helped overall Irish exports hold up relatively well. Irish exports rose 5 per cent in June, according to the Central Statistics Office. However, the steep decline in consumer spending means most other manufacturing sectors have remained under pressure.

The PMI survey, compiled by Markit, found another sharp fall in manufacturing employment last month, the 21st consecutive month in which there has been a net loss of jobs from the sector, as firms respond to weak demand. However, the report noted the fall in staffing was the smallest since May 2008.

New export orders fell last month, continuing a trend stretching back to March 2008. According to Markit, there was evidence from the firms surveyed that increased competition from eastern Europe had accounted for some of the decline. The price charged for goods leaving factories declined as manufacturers tried to stimulate new business, with increased competition also a factor. One-in-five respondents said they had cut prices last month.

Markit said there was also evidence demand for manufactured products had continued to decline last month, with purchasing decisions being postponed due to the recession.

British manufacturing activity showed a surprising drop last month, with its PMI falling to 49.7 in August from a downwardly revised 50.2 in July.

In the euro zone, manufacturing activity shrank less than previously expected in August. But there were stark differences among the bloc’s countries, with a contraction accelerating in Spain and Italy. The survey found the euro zone’s manufacturing sector as a whole is approaching stabilisation, having contracted for 15 months. Last month, the euro PMI jumped to 48.2 in August from 46.3 in July.

In the US, the sector showed expansion last month, with the index there rising to 52.9. However, the survey noted that the rise was unlikely to lead to significant manufacturing job growth.