Manufacturing records first fall since 2003

The manufacturing sector contracted last month for the first time since August 2003, as the volume of new orders fell and employment declined.

Stronger competition and "a general deterioration in demand" prompted the fall in new orders, while some firms reported that they were losing contracts to lower cost rivals, according to the latest purchasing managers index (PMI) published by NCB.

Higher prices for fuel and plastics underpinned a sharp rise in costs for manufacturers in December, with some firms noting increased food costs. However, the rate of input price inflation eased significantly from the nine-month peak in cost inflation recorded in the previous month.

Output prices increased solidly in December, as firms passed on higher input costs to customers.

A drop in staff numbers among the 285 industrial companies surveyed for the index broke a four-month run of employment growth in the sector.

Staffing levels fell marginally last month, with some firms shedding employees due to improvements in productivity and others reporting that lower new order volumes had forced them to cut staff.

The index, which is adjusted to account for normal seasonal variations, gave a reading of 49.5 in December after firms were asked about new order volumes, production levels, input and output costs and employment numbers.

An index reading of more than 50 means manufacturing activity is increasing, while if the index registers less than 50 it means the sector is contracting.

Despite the fall in new order volumes, output at Irish manufacturers continued to increase in December, although the slight rate of production growth slowed markedly since November.

Input buying fell for the first time since August 2005, while stocks of purchased goods contracted at a modest rate.

The index, compiled by NTC Economics, is designed to provide a single measure of the economic health of the manufacturing industry. PMIs are important because they are one of the quickest ways to take the temperature of the business climate. The manufacturing PMI is published on the first working day of each month, followed by the indices for the services and construction industries.