Supply chain issues challenge manufacturers in May

Material shortages, customs checks, the war in Ukraine and Brexit have been blamed by manufacturers for supply chain issues in May, but the month witnessed a sustained improvement overall in the sector’s conditions, according to the latest purchasing managers’ index (PMI) survey data.

There were further increases in output and new work, but the rates of increase slowed sharply to the weakest in the respective 15-month sequences as higher prices dampened client demand.

Production was also weighed down by the ongoing supply issues, which pushed input price inflation to a near-record high in May.

The headline PMI figure 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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The PMI registered 56.4 in May to signal an improvement in manufacturing conditions for the 20th month running. However, it was down from 59.1 in April, and pointed to the slowest rate of growth since February 2021.

The downwards movement in the headline figure primarily reflected slower rates of increase in new orders and output, alongside a lengthening of suppliers’ delivery times.

Quicker rises in employment and stocks of purchases had small positive impacts on the headline figure.

Turning to prices, the rate of cost inflation accelerated again, edging closer to March’s peak. Greater material, fuel and transport costs, Brexit, and the war in Ukraine were all cited in anecdotal evidence as drivers of cost inflation.

In response, firms again raised their factory gate charges in an attempt to pass the rising cost burden to customers. The pace of increase in average charges hit a series record for the third month in a row.

Looking ahead, business confidence weakened to a 19-month low, with the war in Ukraine and steep inflationary pressures reportedly weighing on sentiment.

Amid reports of strong demand, order book volumes at Irish goods producers rose further, driven in part by a moderate rise in new export orders.

The rate of expansion eased sharply, however, to the weakest in the current 15-month sequence and was only modest overall. Some survey respondents noted that higher charges for goods had dampened demand.

A similar trend was recorded for output, which continued to rise, but at the weakest pace since the current growth sequence began in March 2021. The rate of increase was described by AIB chief economist Oliver Mangan as “solid overall”, however.

With production outpacing order book growth, backlogs of work at manufacturers declined for the first time in more than a year, as firms were able to work through unfinished business. Nonetheless, goods producers continued to take on additional staff, extending the current sequence of higher workforce numbers that began in October 2020. Moreover, the rate of job creation was the fourth-quickest on record.

At the same time, buying activity at Irish goods producers rose again, with panellists citing efforts to build stocks due to supply issues and greater production requirements.

“Although the slowest in the current 15-month sequence, the rate of increase was solid,” said Mr Mangan. “Consequently, inventories of purchases rose at the strongest pace for four months.”