Manufacturing sector slides for second month in a row

The Irish manufacturing sector contracted for the second straight month in December in the latest sign of the economic slowdown.

The AIB Manufacturing Purchasing Managers Index (PMI) was little changed at 48.7 in December compared a month earlier, the lender said in a statement on Tuesday. The PMI condenses a slate of measures into a single index. Anything below 50 signals the sector is contracting. As a so-called leading indicator it is a closely watched measure of economic health.

The result “points to a continued deterioration in business conditions in the sector, with new orders in particular falling sharply”, AIB chief economist Oliver Mangan said. “Falling orders led to another drop in output, the sixth decline in the past seven months.”

The level of new and outstanding work within the manufacturing sector fell in December. As a result, firms continued to clear their backlogged orders during the month. The level of outstanding business dropped for the eighth month running, with the pace of the drop accelerating to the fastest rate since June 2020. This contributed to a rise in stocks of finished goods for the sixth month running, AIB said.

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While employment in manufacturing increased in December after dropping in November, the overall impact was “only marginal and expectations for production were below the long-run survey average”, the lender added.

The inflation rate slowed to a 22-month low. Still, input price inflation continued to run above the long-run survey average in December, with 38 per cent of firms reporting increased average input prices, especially for energy. Output price inflation remained historically elevated and accelerated since November.

“The weak PMI reading of 48.7 is broadly into line with the trend seen elsewhere, though the pace of contraction is not as marked in Ireland – the flash manufacturing PMIs stood at 46.2, 47.8 and 44.7 in the US, euro zone and UK in December,” Mr Mangan said. “In terms of the 12-month outlook, sentiment also improved, though it remains at a historically subdued level.”