Manufacturing activity in the Republic slowed for the third consecutive month in December, according to the latest edition of the NCB Purchasing Managers' Index (PMI). Una McCaffrey reports.
The research shows that manufacturing companies ended 2002 in a cautious mood, seeking to reduce costs across operations as the timing of a global economic upturn remains unpredictable.
The overall index registered a value of 49.1, down slightly on the 49.5 rating recorded in November.
A value below 50 signals contraction while a rating above 50 indicates expansion. The PMI peaked at 54.5 in June.
While general production levels among manufacturers increased slightly over the month, most firms preferred to maintain existing production levels in the face of fragile demand.
The survey shows particular weakness in the exports, with orders from abroad declining for the fifth month in a row.
The index also points to sustained prudence in respect of staffing, showing employment in the sector falling in December for the fourth month in a row.
The rate of reduction was the fastest noted since the end of 2001.
NCB chief economist Mr Dermot O'Brien described the employment rating as "disappointing" but acknowledged that wage inflation in the Republic was causing problems for some firms.
He also noted rising costs for raw materials and fuel, saying firms would continue to cut costs as long as such conditions persisted.
"They're just waiting to see what happens externally," said Mr O'Brien, who believed that Irish companies would need to see a recovery in business spending and recruitment in the US before regaining confidence themselves.
Positive indications of such a trend came yesterday, as December figures from the US Institute for Supply Management recorded expansion in business activity for the first time since August.
Mr O'Brien expected the US and euro-zone economies to gain momentum in coming months, as they reacted to stimulatory monetary policies adopted last year.
"I find it difficult to believe that it won't have some impact," he said.
Mr O'Brien was also hopeful that the dollar's recent depreciation against the euro would reduce pressure on US companies to cut costs by allowing them to take advantage of competitive pricing instead.
The consequent economic stimulus would, according to Mr O'Brien, be more beneficial to the euro zone than a strong dollar.
"In a general way, what's really important is that activity is growing in the US," he said.
The Irish PMI rating was mirrored across Europe, with the Reuters Euro-zone Purchasing Managers' Index falling from 49.5 in November to 48.4 last month.
Similar manufacturing data for Britain, compiled by the Chartered Institute of Purchasing and Supply, were also negative, suggesting that the fledgling recovery in the UK manufacturing sector could be coming to an end.
The UK index fell to 49.5 in December, the lowest level reached since July. Marked contractions in employment and stock levels were noted. - (Additional reporting, Reuters)
