THE RECOVERY in sentiment among Irish manufacturing firms waned in July, according to the NCB Purchasing Managers’ Index.

Seasonally adjusted, the pace of output growth slowed for the second month in a row. This adds to the concerns raised about the wider economic recovery following last Friday’s weak retail sales figures.

The index, which is compiled in 26 economies across the world according to the same methodology, shows that Irish manufacturing in July was at or near stagnation, even when adjusted for seasonal summer factors.

The headline composite index fell to 51.4 from 51.8, the weakest in five months (a value above 50 suggests expansion, while below 50 points to contraction).

The employment sub-component of the survey suggests that manufacturers continue to shed labour, albeit at a reduced rate. The jobs sub-component has been in negative territory since the end of 2007, but the rate of contraction has been easing and looks close to a turning point.

While employment is heading in the right direction from a weak position, new manufacturing orders, by contrast, are heading in the wrong direction. From a seasonally adjusted peak in March 2010, purchasing managers in the manufacturing sector have been reporting a declining rate of growth in new business in each subsequent month.

The new export order index stood at 54.1 in July, down from a recent peak of 59.2 in May. Although no figures for domestic orders are published, these are likely still to be contracting.

Backlogs of work fell for the fourth month in a row, and a rise in the cost of raw materials forced a sharp increase in input costs during the month.

Pressure from customers caused Irish manufacturers to reduce output charges for the first time since April, although the decrease was marginal.