Pace of manufacturing activity at two year high

Manufacturing activity in the Republic underwent its fastest pace of growth in two years during the first six months of this year, according to the latest Investec PMI report.

The headline PMI rose from 55.9 in May to 56 in June. Services have not fallen below the 50 mark that separates growth from contraction since June 2012, when Ireland was halfway through a three-year international bailout.

The report shows that new orders rose for the eleventh month in a row. The rate of growth in new export orders quickened slightly from May’s outturn.

This improved client demand prompted a second successive rise in backlogs of work, with the rate of accumulation the most marked in the year to date.

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Given the increased production requirements, it was no surprise to see that firms continue to add to headcounts, with the employment component posting a ninth successive above-50 reading.

Investec said firms were also investing in growing their inventories, with stocks of purchases returning to growth for the first time in 14 months, while the seven month sequence of declines in stocks of finished goods also came to a close in June.

On the margin side, the rate of growth in cost inflation implied by the Input Prices Index remained sharp in June, with plastics and dairy products among the items cited as having increased in price over the month.

“Firms have been seeking to pass such cost pressures on to their customers, and with the Output Prices Index having posted 13 consecutive above-50 readings it is clear that they have been enjoying a degree of success with this,” said Investec economist Philip O’Sullivan.

“In any event, helped by volume growth, the profitability index remained in positive territory for a second month.

In terms of the future profitability index, more than six times as many respondents were expecting production to increase over the coming 12 month as opposed to those anticipating a decline.

“While the return to inventory build-up gives a good indication of how firms assess their prospects, the future profitability index further demonstrates this, as it reveals that business sentiment remained strongly positive in June,” said Mr O’Sullivan.

“Today’s release provides us with a complete picture of how the Manufacturing sector performed over the course of the first half of 2017.

“We note that the implied growth rate quickened over the course of the second quarter, indicating that the sector exited the period with a strong tailwind behind it. Given how leveraged Ireland is to international economic developments and the generally improving global backdrop, we are unsurprised by this.”