Manufacturing continued its recovery last month while employment prospects in the sector brightened considerably, new survey data suggests. But input costs and prices continued to increased sharply.

The NCB Purchasing Manager's Index (PMI) for May rose to its highest level since July 2004. On Wednesday the Quarterly National Household Survey confirmed that employment in manufacturing - the only sector in the economy to shed jobs last year - fell by 12,300 in the twelve months to February.

The overall PMI fell successively in the months leading up to February, but rose since then in the three following months to reach a level of 55.1 in May. Any reading above 50 indicates an improvement in business conditions and a rise in the index above that level signifies an acceleration in growth.

After falling below 50 in January and February, the PMI employment indicator rose to 53.3 in May. Compared with an April reading of 51.7, the improvement in the employment index was the strongest since 2001 and significantly better than the improvement in the headline index. The value of exports rose significantly in April rising from €6.7 billion in March to €8.2 billion.

"Another sharp acceleration in export orders was a significant influence. They rose at their fastest pace in more than six years, testifying to improving external demand. Gratifyingly, employment growth also strengthened significantly", Mr Dermot O'Brien, Chief Economist at NCB Stockbrokers said yesterday.

But the sharpest increase amongst the PMI's sub-indices was for the index for input costs, which rose to 68 in May, from 62.7. The index of output prices also rose, but less sharply, to 56.3 in May from 54.8 in April, and this implies that stronger competition is preventing a full pass through of cost increases to consumers.

The EU PMI for manufacturing - also released yesterday - rose to 57 from 56.7 surprising analysts, who predicted that it would reinforce the European Central Bank's willingness to increase interest rates when its Governing Council meets next week. "Such upside momentum in activity also appears to be lifting private-sector price expectations somewhat, a development which probably will reinforce the ECB's willingness to proceed with gradual interest rate increases" Carmen Nuzzo, economist with Citigroup bank said yesterday.

The PMI is a composite indicator based on an international survey of manufacturing.