Investec Manufacturing PMI Ireland February 2018

01 Mar 2018

The latest Investec Manufacturing PMI Ireland report shows that output in the sector continues to rise sharply, but at a somewhat reduced pace compared to what we have seen in recent months.

The headline PMI stood at 56.2 in February, down from January’s 57.6 reading. 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, there was a pick-up in orders from overseas customers, with the New Export Orders index strengthening to a three month high with increased requirements received from customers across Europe, Asia and Africa.
 
While increased customer orders are welcome, we note indications of capacity constraint issues for manufacturers. The Backlogs of Work index posted a tenth successive above-50 reading, despite continued growth in sector employment (manufacturers added to headcounts for a 17th consecutive month in February). Furthermore, suppliers’ delivery times lengthened at a substantial pace last month, with the rate at which vendor performance deteriorated the second-strongest since the survey began in May 1998, second only to the dubious record seen in August 2010.
 
Another sign of strain in the supply chain is elevated cost pressures, with the Input Prices index continuing to point to a sharp rate of inflation. Respondents reported increasing prices 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 21st successive above-50 reading in February. 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.
 
The report also provides clues on firms’ expectations for the future. In addition to the higher sector employment cited above, Stocks of Finished Goods increased for a fourth month in a row as manufacturers anticipate further growth in client demand. The Future Output index further demonstrates that Irish manufacturing firms are strongly optimistic regarding the 12-month outlook for production, with sentiment only slightly lower than January’s 14-month high.
 
Our narrative for some time has been that the quickening in global growth (Ireland is one of the world’s most open economies) will underpin continued expansion for the manufacturing sector here. 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.
 
To view this full report please click here.