Manufacturing surge as coronavirus restrictions eased

Business sector optimistic that vaccination will lead to the full reopening of economies

The Irish manufacturing sector surged in April at a record pace as production rose and output expectations reached a new peak.

"Firms widely expect vaccination programmes to allow a full reopening of economies, providing a major fillip to business activity," said Oliver Mangan, chief economist at AIB.

The headline AIB Manufacturing Purchasing Managers’ Index (PMI) recorded a level of 60.8 in April, indicating a strong start to the second quarter of the year as industrial activity globally rebounded. That follows 57.1 recorded in March, up from 52.0 in February and 51.8 in January. Any figure greater than 50 indicates overall expansion of the sector.

The headline PMI was elevated by lengthening delivery times for suppliers. Output prices rose at a record rate in April as input costs soared for the month,

Employment grows

New orders rose at the fastest rate in almost a year and for the second consecutive month running in April. New export orders advanced by the second-sharpest increase since February 2018, with demand from the United Kingdom, United States and Asian markets recovering.

Employment also rose, as existing staff saw their hours return to the full rate, leading to firms adding to workforces at the fastest rate since December 2017.

Production marked a second monthly increase as some restrictions imposed as a result of the coronavirus pandemic were eased. But backlogs of work continued to rise at the second-fastest rate recorded.

“This is very much in line with the flash April manufacturing PMI readings for the UK, euro zone and US, which rose to 60.7, 63.3 and 60.6, respectively, as the recovery in the global economy gathers momentum,” said Mr Mangan.

“The sub-components of the Irish PMI survey all point to rapidly improving business conditions in manufacturing. Output growth accelerated sharply driven by rising demand, with a marked pick-up in new orders as Covid restrictions start to be eased. Export orders rose at their second-quickest pace since February 2018.”

However, companies reported pressure on supply chains, with average lead times lengthening as the impact of global raw material shortages and Brexit combined. That led to a rise in input prices, the second fastest hike in the survey’s history.

“Supply chains remain under severe pressure, with longer delivery times owing to new UK customs arrangements, transport delays and raw materials shortages,” Mr Mangan said. “These factors, combined with strengthening demand, are leading to a heightening of inflationary pressures. Input prices increased at their fastest pace in 10 years, while output prices rose at a series-record pace.”

Optimism for the next 12 months seems high, with firms reporting the strongest output expectations on record.

Ciara O'Brien

Ciara O'Brien

Ciara O'Brien is an Irish Times business and technology journalist