The manufacturing sector last month suffered its sharpest slowdown outside of the Covid-19 crisis and since the financial crash almost 15 years ago, new data from AIB show.
Activity in the sector contracted for the fifth month in a row as goods producers scaled back production at a rate that was among the sharpest on record.
AIB’s headline Purchasing Managers’ Index figure for the sector in the month was 47, while 50 is the number that separates growth and contraction. The figure is derived from indicators for new orders, output, employment, suppliers’ delivery times and stocks of purchases.
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The latest reading was down from 47.3 posted in June and was indicative of the most pronounced decline since May 2020.
Purchasing activity was pared back markedly but employment growth was renewed. Elsewhere, falls in both input costs and output charges were sustained in July with the drop in the former the quickest since April 2020.
According to panel members, sector weakness continued to emanate from a muted demand environment. This was underscored by a fifth consecutive monthly contraction in the volume of new orders received by Irish goods producers in July.
Moreover, the pace of decrease quickened to the sharpest in the year so far. International demand also deteriorated, albeit at a softer rate. The decrease in new export orders was the 14th in successive months, but the weakest in 2023 to date.
Lower sales volumes, in turn, fed through to another cut in manufacturing production in July, the fifth fall in as many months. The pace of decline was substantial overall and among the sharpest in the survey history, which dates back to May 1998.
Companies subsequently continued to adopt a cautious attitude with regard to their purchasing activity. The fall in input buying was the quickest in more than three years and significant overall.
Panel members linked the decline to weak demand conditions and associated efforts to downwardly adjust stocks. As a result, pre-production inventory levels contracted for the fourth month running and at a solid pace overall.
Weakening demand for inputs meant that suppliers remained able to deliver materials in a timely manner during July. Vendor performance improved for the fifth month in succession, albeit to the least pronounced extent over this period.
Subdued demand in the manufacturing economy meant that resources were generally diverted towards the completion of pending workloads, with post-production inventory levels rising following lower-than-expected new order inflows.
The former declined for the 15th month running and at a strong pace while the latter signalled only a marginal increase.
What about inflation?
Despite sustained declines in production and new orders, firms added to their staffing levels during July. While only modest overall, the uplift contrasted with a decline posted in June and was the strongest since February.
In terms of inflation, a combination of falling raw material costs and declining supplier charges supported further price decreases. The drop in input costs was the fourth in consecutive months and accelerated to the quickest since April 2020.
Panel members reportedly sought to transfer some of these cost savings through to their clients. Subsequently, output charges decreased for the third month in a row and at a modest rate overall.
Finally, Irish manufacturing firms maintained an upbeat outlook towards their projections for output over the coming 12 months.
Anecdotal evidence suggested that positive growth assessments were mainly underpinned by hopes for a pick-up in market demand.
