Rebound in manufacturing slows amid weaker demand
Manufacturing activity kept growing last month but at a slower pace than in July amid weakening demand and resumed job cuts.
The monthly purchasing managers’ index (PMI) produced by IHS Markit for AIB found that business conditions for manufacturers “continued to improve in August but the recovery lost momentum”.
The headline PMI score declined from 57.3 in July – a 23-month peak – to 52.3 last month. That five-point drop was the fourth-largest on record since the survey began in 1998,
Nonetheless, the 52.3 reading represents higher activity than in July. Any figure above 50 indicates growth from the month before; the higher the number, the stronger the growth.
“The loss of momentum in August is not surprising given the pick-up in new coronavirus cases over the past month, both in Ireland and elsewhere, and the continuing very uncertain economic outlook,” said AIB chief economist Oliver Mangan.
He said Ireland’s 52.3 measure for August was “broadly in line with data elsewhere”, noting that it was midway between the wider eurozone’s reading of 51.7 and the US reading of 53.6.
“The details of the August survey point to considerable caution in the sector amid much uncertainty about the economic outlook,” Mr Mangan said.
“Output continued to grow at a strong pace as markets reopen, though not as rapidly as in July. Growth in new orders, while still solid, slowed appreciably from July, suggesting some softening in demand,” he said. “Stocks of finished goods and inputs continued to decline in August as firms looked to minimise inventory levels in the very uncertain environment.”
Manufacturers reported that their new orders still were growing, but at a level 8.2 points lower than in July. That represented the second-largest monthly drop in the 22-year history of the survey.
Firms said they laid off more staff last month, returning to net job losses experienced from March through June. Manufacturers had reported a modest July increase in hiring as workers returned to payrolls from Pandemic Unemployment Support payments.
However, that trend reversed in August, reflecting what the survey summarised as “redundancies, the non-replacement of leavers, non-renewal of temporary contracts and general market uncertainty”.
“The rate of job shedding was not as severe as that seen from March through June, however,” it found.
While manufacturers’ input prices rose for the second straight month, these higher costs were not passed on to customers, as output prices fell last month amid “slower growth of new work” and “efforts to clear out old stock”.
The survey’s Future Output Index found grounds for optimism. About 43pc of respondents expect to see higher turnover in August 2021 versus today, while 23pc expect the opposite. Nonetheless, growth in firms’ optimism has “stalled following an initial rebound in May and June”. it said.
The monthly PMI reflects the views and experiences of about 250 manufacturers nationwide.
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