Strong euro, costs and low demand hit industry hard

IRISH MANUFACTURING hit a new record low last month as the combination of a strong euro, deteriorating demand and rising costs depressed activity.

The NCB Purchasing Managers' Index dropped to 43.4 in July from 44.7 the previous month to its lowest reading since the survey began in May 1998.

Eunan King, chief economist at NCB Stockbrokers, said economic conditions remained challenging for the manufacturing sector. The strength of the euro and weak demand had resulted in new orders contracting at a record pace last month, he said.

July was the sixth month out of seven in which the index remained below the 50 mark separating growth from contraction. The four years prior to December 2007 had seen uninterrupted expansion.

New orders were lower last month, with this part of the index declining to an all-time low of 41.8 compared with 43.1 in June. The strength of the euro was impacting on orders from the UK and US, the survey found.

"Anecdotal evidence suggested that a general deterioration in domestic demand, combined with worsening export conditions, led to the marked contraction of overall new orders," said Markit, which compiles the survey.

Manufacturers were responding to lower new order volumes by cutting jobs, the survey found. "At 42.8, the seasonally adjusted employment index signalled the second-sharpest fall in staffing levels in the survey history," Markit said. New export orders remained weak in July at 46.2, compared with 46.1 in June.

The decline in orders and competitiveness was compounded by rising cost inflation with the index measuring this element of manufacturing rising to its highest ever level in July.

Separate data released yesterday showed that Europe's manufacturing industry contracted for a second month in July after oil prices rose to a record high and the stronger euro damped export growth.

Royal Bank of Scotland Group's manufacturing index fell to 47.4 from 49.2 in June. That's down from a preliminary estimate of 47.5 published on July 24th, and the lowest since June 2003.