IRISH MANUFACTURING deteriorated last month as output, new orders and employment levels dropped sharply, according to data released yesterday.

The NCB Purchasing Managers Index (PMI), which measures manufacturing activity, fell to 43.7 from 44.9 the previous month, marginally higher than July's record low of 43.4.

September was the 10th consecutive month the index has been below the 50 mark that separates growth from contraction.

Brian Devine, chief economist at NCB Stockbrokers, said manufacturing firms were being squeezed by a drop in both domestic and international demand. "Consequently, output continues to contract, as do employment and new orders."

A fall in demand from the euro zone and Britain had hit new export orders and he said this trend was likely to continue. This resulted in the new orders index for September falling to a seasonally adjusted 43.4, from 44.1 in the previous month.

New export orders showed a marked contraction last month, falling to 45 from 47.3 in August. This marked the seventh consecutive month in which new orders from overseas declined, with survey respondents noting in particular increased competition from eastern Europe.

With new orders and exports under pressure, September was the 10th consecutive month in which more jobs were lost than created in the sector, with the index of manufacturing employment falling to 43.

The report said employment levels at manufacturing firms have fallen every month since December. With fewer orders, manufacturing firms addressed their backlogs last month, a move which drove down the levels of outstanding work to a reading of 36.6, compared with 45.9 in September 2007.

The contraction in Ireland's manufacturing industry was replicated in the euro zone and Britain as the global financial turmoil hurt businesses.

Factory activity in the euro area showed the fourth straight month of contraction in September, with output at its weakest since immediately after the September 11th attacks seven years ago, a survey of firms by Markit showed yesterday.

Britain's manufacturing sector put in its worst performance in at least 16½ years, according to a companion survey.

In Japan, the closely-watched Tankan index of manufacturing turned negative for the first time since 2003, showing that a weak world economy was hurting its fragile, export-reliant economy. - ( Additional reporting Reuters)