Manufacturing production boosts sector

Strong levels of production ensured that manufacturing delivered a robust performance yet again last month, despite spiralling input costs.

The seasonally adjusted NCB Purchasing Managers Index (PMI), which measures the economic health of the manufacturing industry, reached 54.1 in August. This was the 36th consecutive month in which the manufacturing PMI increased.

"The recovery in manufacturing activity continued in August, although the pace of expansion eased once again," said Dermot O'Brien, chief economist at NCB Stockbrokers. "Output growth held up well but there was a slower rate of growth in new orders and employment."

Manufacturing production levels, which have increased each month since September 2003, displayed strong growth in August, with productivity improvements and new business growth cited as the key drivers. Higher production levels in turn led to increased purchasing activity among manufacturers.

Firms benefited from an increase in the volume of new orders, and employment levels also continued to rise, albeit at the slowest rate in five months.

However, manufacturers faced sharp cost hikes yet again last month. "Firms widely mentioned higher raw material prices and energy bills," NCB said yesterday.

"Around 31 per cent of firms indicated that input prices had risen since July, as costs rose at a sharper pace than in the pervious month."

While prices charged by manufacturers also rose, they were outstripped by input cost inflation, which NCB says suggested a "squeeze on operating margins".

Manufacturing growth in Europe eased in August to a still brisk cruising speed as inflationary pressure eased.

PMI surveys of corporate purchasing managers have left Europe-focused economists content in the belief that growth is respectable and euro zone interest rates are sure to rise further. This was despite a fall in the euro zone August PMI reading for the second successive month, to 56.5, from 57.4 in July.