Growth in the Irish manufacturing sector expanded in May with the headline rate rising to an almost two year high.
The latest Investec Manufacturing PMI Ireland report shows a strengthening in the rate of growth in activity to a 22 month high of 55.9.
Manufacturers reported a three-month high in terms of growth in new orders, with roughly twice as many respondents signalling a rise in new business as opposed to those who recorded a fall.
While the pace of expansion in new export orders moderated in May, it was still substantial and much faster than the series average.
“Given the improving demand profile, it is no surprise to see firms step up their buying activity, with the rate of growth in quantity of purchases strengthening to the joint-fastest in the past two years,” said Investec’s Philip O’Sullivan.
“Firms have been using stocks of finished goods to help meet client orders, but with the rate of depletion in this index moderating to the slowest in the current seven month sequence of declines and the brighter international backdrop we suspect that manufacturers may be about to start investing in growing inventories once more.
“It’s a similar situation for stocks of purchases, where a marginal decline was also recorded in May.”
On the margin side, the rate of increase in input prices cooled to the slowest in the year to date.
However, Mr O’Sullivan said it “remains substantial and therefore we are unsurprised to see firms hike output prices for a 12th successive month, presumably in a deliberate move to protect margins”.
“This strategy appears to be paying off, with the profits index posting its first above-50 reading in the year to date,” he said.
Employment index
Apart from signs of higher investment in inventories, another indication of firms’ confidence in the outlook is the employment index, which expanded at its fastest pace in the current eight month sequence of growth.
“In spite of the increased resources, backlogs of work returned to growth in May, a factor that presumably explains the improvement in the expectations of future output index to a three-month high after the eight month low that was recorded in April,” said Mr O’Sullivan.
“Last month we outlined our belief that the outlook for Irish manufacturing firms remains positive, supported by the improving international backdrop. After estimated growth of 3.1 per cent in 2016 we forecast that the global economy will expand by 3.6 per cent this year and by a further 3.9 per cent next year, which would be the best annual GDP growth rate for the world economy since 2011.
“So, given such a supportive profile, we would anticipate further strong manufacturing PMI readings over the coming quarters.”
