Manufacturing sector shows signs of recovery

The manufacturing industry showed signs of moderate recovery in November after a period of sustained decline, figures issued yesterday showed.

The rate of contraction in the sector eased, although unemployment rose slightly, the NCB stockbrokers purchasing managers' index revealed.

The index climbed to 49.5 from 48.8 in October, but remained below the 50.0 threshold for the second successive month.

Cautioning that the health of the manufacturing sector did not provide an accurate snapshot of the overall state of the economy, which has become increasingly dependent on services, NCB senior economist Mr Eunan King attributed the decline to continued cooling in European markets.

The modest fall in the rate of decrease was in line with predictions, suggesting more substantial recovery would arrive next year, said Mr King.

"Though poor external demand hit Irish manufacturing this autumn, the November purchasing managers' index suggests that the effects may be waning. The recent aggressive interest rate cut in the US may possibly have boosted confidence here, given the importance of that market for Irish exports."

Manufacturing production actually grew for the 11th consecutive month, but incoming new orders - which tend to lead any changes in input - fell slightly for the second month running.

Firms interviewed by NCB said the fall-off was due to clients postponing fresh orders amid continued uncertainty over the direction of the global economy.

Job losses were attributed to the need to tighten competitiveness and reduce overheads, respondents told NCB. However, the rate of job losses slowed, having fallen at the fastest rate for 11 months in October.

A fall in exports underlined the worldwide slump in manufacturing output, although the rate of decline eased slightly compared to previous months.

Ongoing sluggishness in the sector has had a knock-on impact on supply industries. The majority of panel firms met production requirements from existing stock. As a result, stock for purchases fell for the fourth consecutive month, although at a lesser rate than previously.

Speculation that the European Central Bank is set to reduce interest rates is unlikely to prompt an immediate recovery, Mr King said.

Although a rates cut would be welcomed in the Republic, it would have a much less significant impact in the larger euro-zone economies, whose stagnancy was largely responsible for the sluggish condition of the Irish manufacturing sector, he said.

More positively, much of the large-scale manufacturing was carried out by multinationals, whose performance had little bearing on the health of the wider economy.Such firms employed approximately 100,000 - a fraction of the State's total workforce, Mr King said.