Drop in demand prompts fall in output

Sat, Jul 2, 2011, 01:00

ACTIVITY IN the manufacturing sector fell in June for the first time since September 2010, according to the latest NCB manufacturing Purchasing Managers’ Index.

The data shows the composite index fell to 49.8 from 51.8 in May, dipping below the 50 mark and signalling contraction for the first time in 15 months. Anecdotal evidence pointed to fragile client confidence being behind the fall in output, NCB said.

Purchasing managers’ indexes in Asia and Europe slid to multi-month lows in June as factories fought a twin battle with weaker consumer demand overseas and tightening monetary policy at home.

Going against the trend, US manufacturing grew at a surprisingly strong pace in June.

In Ireland, the output reading fell from 52.6 to 48.7, while the new orders index declined from 52.9 to 48.7. Panellists reported declining demand, particularly in the domestic market, as being behind the decline in the new orders index.

Falling new orders led firms to transfer spare resources to complete outstanding business. Consequently, backlogs of work decreased sharply, and at the fastest pace since October 2009.

The drop in new orders also led to job losses for the second consecutive month, with the rate of decline accelerating at the fastest pace in nine months.

Input-buying decreased at a solid rate, with the reduction mainly reflecting the decline in new work. The fall in purchasing was the sharpest since February 2010.

New export orders continue to grow, but the rate of expansion slowed to its weakest in 18 months. In addition, the sub-index measuring output fell to 49.3 from 52.6 in the previous month, the first fall since February 2010.

Anecdotal evidence suggested that new export orders were key to supporting output growth, but that demand had waned over the month.

“Manufacturing output, driven by exports, has been the positive dynamic in the Irish economy over the last number of years as domestic demand has struggled,” said Brian Devine, economist at NCB Stockbrokers.

“It is thus worrying to see that the PMI index [Purchasing Managers’ Index] is once again signalling contraction, although there is some comfort in the fact that new export orders continue to expand,” he added.

NCB said input cost inflation remained considerable last month with many firms passing on higher raw material prices to clients.

Charges rose for the sixth month running in June, while suppliers’ lead times lengthened for the 19th successive month, and at a marked pace.

Pre-production inventories decreased although the pace of reduction moderated over the month. – (Additional reporting Reuters)