Storm Emma hit manufacturers hard in March

The manufacturing sector has reported significant disruption to businesses last month during Storm Emma.

According to Investec’s Purchasing Managers’ Index (PMI), output rose only marginally, and firms were forced to use buffer stocks to help meet demand. New orders and employment continued to rise sharply however, while business confidence data remained elevated.

The PMI, which is an indicator to provide a single-figure measure of the health of the manufacturing industry, dipped to 54.1 in March from 56.2 in February. The 50 mark separates expansion from contraction.

Although continuing to signal a solid monthly strengthening of the health of the sector, the rate of improvement eased to the weakest for a year. Central to the weaker improvement in business conditions was a much slower rise in manufacturing output during the month.

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Production increased only marginally, and at the weakest pace since August 2016. Anecdotal evidence “overwhelmingly” linked the slowdown in output growth to snow disruption caused by Storm Emma.

The rate of expansion in new orders also eased in March, but only marginally. Total new business continued to rise sharply amid generally improving market conditions. A marked increase in new export orders was also recorded.

With new orders continuing to increase sharply but production lines affected by the severe weather, manufacturers noted an increase in backlogs of work. Moreover, the rate of accumulation was the fastest since December 2016.

With firms struggling to fulfil new orders through production, they were forced to eat into buffer stocks. As a result, post-production inventories decreased steeply, and to the greatest extent in just over six years.

Delivery times

Suppliers’ delivery times were also impacted by the snow. Lead times lengthened at a sharp pace overall, with supply chains already under pressure as a result of increasing demand for inputs.

Purchasing activity rose solidly, and at the same pace as in February, in line with higher new orders. Meanwhile, stocks of purchases were broadly unchanged.

New order growth also led to a further marked increase in staffing levels, extending the current sequence of job creation to 1½ years.

Input prices continued to rise sharply in March, despite the rate of inflation easing for the second month running. Panellists reported higher costs for raw materials, in particular steel.

Firms raised their output prices accordingly, resulting in the fastest increase in charges since August 2017.

Planned new product launches and predictions of rising new business supported continued confidence among manufacturers that output will increase over the coming year.

Disruption to production caused by the storm was reportedly the key factor behind a rise in backlogs of work. The rate of accumulation was much sharper than seen in February, and the strongest since December 2016.

Irish manufacturing firms continued to raise their staffing levels sharply during March. This was despite the rate of job creation easing to a five-month low. Roughly twice as many panellists increased employment as those who reduced workforce numbers, with respondents linking hiring to rising new orders.

Profitability

Profitability deteriorated for the second successive survey period. The reduction in profits during the first quarter of the year was marginal, but faster than that seen in the three months to February and the most marked since the April 2017 survey period. Panellists generally attributed lower profitability to higher cost burdens.

Investec’s Philip O’Sullivan said he expected the data next month to be more encouraging.

“All in all, we wouldn’t read too much into this month’s data given the weather distortions, and would expect a marked improvement when the April Manufacturing PMI report is released.”