Ireland manufacturing bounce-back continues

Despite inflation, a sharp rebound in Irish manufacturing activity continued in July held back only by some limits on access to raw materials and ongoing lack of access to shipping capacity – both of which are feeding into costs. Demand from domestic and international markets ultimately drove the rise in activity and jobs.

In spite of a slow-down from recent months, the pace of growth was among the fastest ever recorded, according to the latest Purchasing Managers Index (PMI) from Allied Irish Bank (AIB). The number of manufacturing jobs has now risen for 10 consecutive months. New order growth hit a record high for the third month running, leading to unprecedented increases in both purchasing and back logs of work, according to the AIB research.

However, what are described as “wide-ranging raw material shortages” as well as a lack of adequate shipping capacity continued to drive up input prices in July and fed into manufacturers passing that higher cost on to customers.

The manufacturing PMI registered a three-month low reading of 63.3 in July, down from 64.0 in June and May’s all-time high of 64.1. But even the lower figure reflects a rapid pace of growth.

The index takes a mix of information on orders, employment, costs and output from a survey of private sector managers and turns them into a simple one number index – where a figure above 50 means growth and decline is tracked from 50 down.

The latest figure signals a rapid overall improvement in Irish manufacturing business conditions at the start of the second half of 2021, and stronger growth than in any preceding period since the survey began in 1998, according to AIB. Chief economist at AIB, Oliver Mangan said the Irish data remains broadly in line with strong PMI’s from other key advanced economies including the UK, eurozone and US, with access to materials and inflationary pressure a notable concern.

“Not surprisingly, against a backdrop of shortages and insufficient shipping capacity, price pressures continue to build in the sector. Input prices rose at their third highest pace ever and the passing on of these higher costs to customers saw output prices register another big jump,” Mangan said.

Data from the US showed manufacturing there expanded at a softer – yet still solid – pace in July as producers also grappled with persistent bottlenecks and input shortages.

The US Institute for Supply management’s (ISM) gauge of factory activity eased for a second month, to 59.5 from June’s 60.6 according to data released last week.

Chairman of the ISM’s manufacturing business survey committee, Timothy Fiore, said in a statement: “Companies and suppliers continue to struggle to meet increasing demand levels.” Meanwhile, the UK’s manufacturing growth gathered pace in the second quarter as production increased for the 13th consecutive month in June with demand particularly strong from the EU, the US and China. The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index rose from 60.9 in April to 63.9 in June and then dipped to 60.4 in July, but still signalling a strong expansion.

The growth was driven by increased new orders, helped by stronger client confidence and the reopening of more parts of the economy. Employment in the sector also rose due to the increase in business. However, delays related to supply chains due to Brexit and Covid-19 and input shortages pushed prices up again, leading to fears of inflation.

Director at IHS Markit, Rob Dobson, said: “Growth is being boosted by the unlocking of economies from Covid restrictions and ongoing vaccination programmes. This is being felt across the globe, as highlighted by a record rise in new export business during the latest survey month.” (The writer is our foreign correspondent based in the UK)