New Covid restrictions delay recovery in manufacturing

Irish PMI reading continues to lag activity elsewhere in Europe and in the US

Manufacturing companies reported a slow down in new orders in October as new Covid-19 restrictions in Ireland and abroad began to bite.

The latest AIB purchasing managers' index (PMI) survey of Irish manufacturers highlighted what the authors called "soft business conditions" in the sector.

The headline index edged up to 50.3 last month from a four-month low of 50 in September. Scores below 50 signify contraction.

“This signalled an overall improvement in business conditions at the start of the fourth quarter following a stagnation at the end of the third quarter as an initial summer rebound from the spring coronavirus lockdown faded,” AIB said.

The latest reading was well down on the recent peak of 57.3 in July, and signalled only a marginal improvement in conditions in October, it said.

The upward movement in the PMI masked contrasting pictures among its five components.

While the sub-index for employment signalled growth for the first time in three months, new orders contracted for a second month in a row, suggesting demand conditions remain weak. New export orders also fell for the second successive month. The sub-index for output was broadly stable, having declined in September.

"The details of the October survey point to broadly stable though subdued business conditions in the sector," said AIB chief economist Oliver Mangan.

“Output was virtually unchanged from its level in September. There was a slight decline in new orders, both domestic and international, with firms linking the weakening in demand to Covid-19 restrictions.

"It is noteworthy that the Irish PMI reading for manufacturing in October continued to lag behind elsewhere in Europe and the US, which have enjoyed a stronger and more sustained rebound in activity post the Covid lockdown implemented earlier in the year," Mr Mangan said.

China’s factory activity expanded at a slightly slower pace in October, but was slightly above analysts’ expectations, suggesting a continuing economic recovery as the country rebounds from the coronavirus shock.

The equivalent barometer in the US, which comes ahead of this week’s presidential election, is expected to point to continued recovery in the sector.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times