Business

Conditions in manufacturing sector deteriorate at most severe level in almost a year

Central to the downturn were sharp and accelerated contractions in new orders and output as demand worsened

Irish manufacturers were keen to reduce inventory levels and only hold stocks per the current sales requirements.

Colin Gleeson
Mon Jul 1 2024 - 12:48

Operating conditions across the Irish manufacturing sector deteriorated at their most severe in nearly a year last month, according to AIB.

The bank’s manufacturing PMI data shows underlying demand trends continued to worsen and thereby resulted in sharper contractions in new factory orders and production.

Moreover, while growth in employment was reported in June, the rate of job creation lost pace since May to signal only a fractional uptick in staffing levels. Inflationary pressures meanwhile picked up.

The headline rate is a composite single figure indicator of manufacturing performance. It is derived from indicators for new orders, output, employment, suppliers’ delivery times and stocks of purchases. Any figure greater than 50 indicates overall improvement of the sector.

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With a PMI reading of 47.4 in June, down from 49.8 in May, the health of the Irish manufacturing sector worsened for the fourth straight month and at an accelerated pace. In fact, the latest downturn was the most marked since July 2023.

Central to the stronger deterioration in operating conditions were sharp and accelerated contractions in new orders and output. Irish manufacturers noted that the current economic climate dissuaded client activity.

As a result, demand retreated sharply, which in turn meant that production levels were scaled back at a sharp pace as well. Both new orders and output decreased for the fourth month running, with the latter contracting to the greatest extent in 11 months.

Irish manufacturing firms adjusted their buying activity in line with falling output. Quantity of purchases fell for the third consecutive month in June and at a rate which was quicker than that seen in May and strong overall.

Consequently, stocks of purchases and finished items were further depleted, and those too at quicker rates. Irish manufacturers were keen to reduce inventory levels and only hold stocks per the current sales requirements.

Suppliers’ delivery times for inputs shortened for the second successive month in June, albeit at only a fractional rate.

The improvement in vendor performance was attributed to subdued economic activity, which allowed vendors to make timely deliveries.

Turning to prices, cost burdens facing Irish goods producers rose at the quickest rate since March amid reports of higher raw material and supplier prices. In turn, panellists passed on their costs to customers.

The pace of increase in output prices was the quickest in 14 months and stronger than the long-run average.

The main bright spot for the Irish manufacturing sector remained employment. Staffing levels have now been raised in five of the last six survey periods.

That said, the ongoing decline in production requirements impacted recruitment activity.

The rate of job creation broadly stalled in June, having lost momentum from May’s eight month high. Surveyed manufacturers reported difficulties in retaining staff amid the ongoing decline in output.

Lastly, the year ahead outlook for production brightened in June. Expectations across manufacturing companies based in Ireland were the strongest recorded since the start of the year.

The rise in confidence levels was underpinned by hopes of improvement in demand conditions and reduction in interest rates.

However, in line with the trend observed throughout 2024 so far, the level of optimism remained below the survey average amid concerns surrounding the country’s subdued economic climate.

Colin Gleeson

Colin Gleeson

Colin Gleeson is an Irish Times reporter

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