Manufacturing growing at fastest rate in six years

The manufacturing sector is growing at its fastest rate in over six years, according to data published yesterday.

The NCB Purchasing Managers Index (PMI) for the manufacturing sector rose for the fourth month in succession to reach 55.4 in June, its highest value since May 2000.

The employment conditions index also rose for the fourth month in succession to 54.1 in June, up markedly since its February reading of 49.0. A reading above 50 indicates growth while those below that threshold signal contraction.

The Irish figures were mirrored by data from elsewhere in the euro zone, highlighting the strength of the area's industrial recovery.

The Irish recovery tallies with recent official statistics for the sector. Figures released last week by the Central Statistics Office (CSO) showed manufacturing employment picking up between January and March of this year.

Although a gauge of sentiment and not a reliable indicator of total employment in manufacturing, the latest PMI does suggest that the sector continued to create jobs into mid-year. More than 20 per cent of firms reported that staffing levels had increased since May.

Other sub-indices of the PMI confirm that output and new orders also rose strongly in June, contributing strongly to job creation in the sector.

But, while remaining in positive territory, the indicator for export orders fell sharply from 57 in May to 55.6 in June.

So strong was growth in new orders that firms reported falls in inventory levels, despite rising production.

The index for input prices was 67.2 in June, further above the 50 benchmark than for any other category.

Firms mentioned higher metal and oil costs as significant contributors to the continued rise in business costs, although the June reading implies that pressure has eased somewhat compared to May, when the index reading was 68.

The output prices index recorded a value of 56.4 in June, indicating that firms continue to pass on the effect of input price increases to consumers.

Manufacturing sentiment for the euro zone reached its highest level since August 2000. The manufacturing PMI for the 12-country economic bloc, also published yesterday by NTC Research, rose to 57.7 in June compared to 57 in May, providing a further sign of inflationary pressure.

Kevin Gaynor, economist at the Royal Bank of Scotland, said the football World Cup "undoubtedly provided a brief fillip to growth, but this can only explain part of the continued surge in expansion".

"The combination of stronger growth and the rising inflation bias confirms that euro zone rates need to go higher," David Brown, economist at Bear Stearns, said yesterday.

Among the largest euro-zone economies, Germany reported the strongest growth in manufacturing output for the seventh consecutive month, according to yesterday's purchasing managers' indices. Spain and Italy also saw growth rates accelerate.

Equivalent surveys published yesterday for the US, Japan and UK all pointed to increased activity in manufacturing. - (Additional reporting, Financial Times service)