Business Irish

Sunday 18 March 2018

Manufacturing output increases at reduced pace in February

(Stock image)
(Stock image)
Ellie Donnelly

Ellie Donnelly

Manufacturing output moderated in February, having ended 2017 at the highest level recorded in the almost 20 years since measuring began.

The headline Purchasing Managers Index (PMI) stood at 56.2 in February, down from January’s 57.6 reading, according to specialist bank Investec’s Manufacturing PMI index.

Any reading over 50 is deemed growth.

Despite the moderation in growth, the sector has now posted 57 successive above-50 readings.

While the rate of growth in overall customer demand signified by the New Orders component moderated in tandem with the headline PMI, respondents to the survey reported a pick-up in orders from overseas customers, with the New Export Orders index strengthening to a three month high.

Customers from Europe, Asia and Africa in particular contributed to the increased growth in new export orders.

Investec did however note that there were indications of capacity constraint issues for manufacturers, with backlogs of work and suppliers’ delivery times all increasing.

In addition, the rate at which vendor performance deteriorated was the second-strongest since the survey began in May 1998.

Respondents also reported increasing cost pressures, with prices rising for a range of raw materials, including electronic items, paper and steel.

"Firms have made efforts to pass these cost pressures on to end-customers, with the Output Prices index posting a 21 successive above-50 reading in February," Philip O’Sullivan, economist with Investec, said.

"However, the rate of pass-through proved insufficient to prevent the Profitability index falling below 50 for the first time in 10 months, even with the help of rising volumes."

Looking forwards, the respondents reported that they were “strongly optimistic” about the next 12 months, with sentiment only slightly lower than January’s 14 month high.

"Our narrative for some time has been that the quickening in global growth will underpin continued expansion for the manufacturing sector here," Mr O’Sullivan said.

"In that regard, we are unsurprised by the headline progress advertised by this latest PMI release, although the capacity issues will require careful monitoring (at least) in the coming months."

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