Severe weather conditions hit manufacturing activity in January

THE SEVERE weather in January took its toll on Ireland’s manufacturing sector, which slowed down during the month, according to figures published yesterday.

The figures contrast with growth in manufacturing activity in other economies last month as they emerged from recession, although an uncertain US jobs market and divergence in euro-zone factory output were concerns, data indicated.

The NCB Purchasing Managers’ Index (PMI), which measures Irish manufacturing activity, fell to 48.1 from 48.8 in November and December. The report said the freezing conditions in the early weeks of the year exacerbated falling demand, leading to the sharpest reduction in production in five months.

Output has contracted every month since March 2008, with the exception of November 2009, when it recorded a slight rise.

Brian Devine, economist at NCB Stockbrokers, said the snow and ice that hit the State over the new year had an adverse impact on figures, with output, new orders and supplier performance dipping.

“The adverse weather conditions which prevailed in early January caused havoc with businesses on both the supply and demand front,” he said. “Consequently it is difficult to decipher whether the fall in demand was solely due to the weather or whether demand continues to remain weak.”

The sub-index measuring manufacturing output was hit hardest. It fell to levels last seen in August, slipping from 49.8 to 47.0.

New business also contracted for the first time in three months, falling marginally below the 50 mark, with NCB saying the fragility of the wider economy fuelled clients’ reluctance to undertake new projects.

The report said the rate of decline in purchasing activity accelerated in January to its fastest in four months, as workloads fell.

Further declines in new orders are anticipated in the coming months. “Inventory depletion policies led to falls in both stocks of inputs and finished goods as firms attempted to maximise cash flow while future new business levels remained uncertain,” NCB said.

However, there was some good news for the economy, with new export orders providing a source of growth.

The report said export orders reached their highest level since October 2007, at 53.5. NCB cited anecdotal evidence that suggested the growth reflected expansion into new export markets.

While Ireland technically pulled out of recession in the third quarter of 2009 based on quarterly gross domestic product (GDP) data published in December, the economy has remained weak, with the more relevant measure of gross national product (GNP) continuing to fall.

“This [export increase] combined with a moderation in the pace of decline in domestic demand should see GNP as well as GDP begin to expand in Q1 2010,” Mr Devine said.

Elsewhere, the US Institute for Supply Management’s index of national factory activity rose to 58.4 in January, its highest level since 2004, from 54.9 in December.

China’s vast manufacturing industry expanded at a near record pace, Britain saw activity grow at its fastest rate in 15 years, India showed strong gains, and South Korea and Australia also recorded improvements.

But while the euro-zone manufacturing sector grew at its fastest pace in two years in January, there is a widening divergence between sluggish Spain and Greece, as well as Ireland, compared with buoyant Germany, France and Italy.

“That could hinder the recovery in the euro area as a whole – and raises the chances of the euro group having to bail out members who cannot cope with their fiscal difficulties,” said Colin Ellis of Daiwa Securities. – (Additional reporting: Reuters)