Mild downturn in manufacturing continues in December
The final AIB PMI survey of Irish manufacturers for 2019 revealed a further deterioration in business conditions in December.
The extent of the downturn remained mild, with new orders and employment only fractionally lower than in November. Exports remained the main drag on total new orders, linked to a weak UK market. Output was cut as firms sought to address a build-up of unsold stock. More positively, expectations continued to recover from September’s low.
The headline AIB Ireland Manufacturing PMI is a composite single-figure indicator of manufacturing performance. The PMI edged lower to 49.5 in December, from 49.7 in November.
The latest sub-50 reading indicated an overall deterioration in manufacturing business conditions for the sixth time in the past seven months, the longest downturn since the second half of 2011 through to early-2012.
That said, the overall downturn remained mild, with new orders and employment only fractionally lower than in November. A sharper fall in output and lower new business were mostly offset by the greatest lengthening in suppliers’ delivery times in seven months.
Oliver Mangan, AIB Chief Economist, commented: “Weak export demand, especially out of the UK, continues to weigh on Irish manufacturing activity according to the latest PMI data. The AIB Irish Manufacturing PMI came in at 49.5 in December, marginally down from its level of 49.7 in November. The index, though, averaged 50.0 for the fourth quarter as a whole, consistent with stagnation in the sector. This was up from the third quarter average of 48.7.
“The stand-out feature of the December data is the marked decline of new export orders. These have contracted at a significant pace right through the second
half of 2019. Yet again survey respondents called out the weakness in orders from the UK in particular, where Brexit related uncertainty is weighing on demand.
The volume of new orders received by manufacturers fell in December, following a two-month spell of marginal growth.
That said, the rate of contraction was weak, and slower than those registered from May to September. The overall reduction mainly reflected weak exports, mainly linked by firms to the UK market. New export orders fell for the sixth month running, and at the second-fastest rate in over ten years.
Lower incoming business led to a further cut in production in December, the sixth in eight months. The rate of decline accelerated slightly since November as firms attempted to control rising stock levels. Inventories of finished goods increased for a survey record-equalling seventh month running, and at the fastest rate since August.
The Irish manufacturing workforce was cut for the second month running in December, the first consecutive decline since March-May 2013. That said, the rate of job shedding was only marginal and eased since November.
With subdued demand conditions at the end of 2019, manufacturers exercised caution with regard to purchasing activity. Input volumes fell for the seventh time in eight months, and stocks of purchases were cut at the strongest rate since March 2017.
Manufacturers’ purchase prices continued to rise in December, extending the current sequence of increases to 44 months, the second-longest in the survey history.
Greater cost pressures were partly attributed to the recent strengthening of sterling against the euro. That said, the rate of inflation eased to the second-weakest since July 2016, remaining well below the long-run survey average.
Average prices charged for manufactured goods rose for the third month running in December, reversing a continuous decline during the third quarter of 2019. The rate of output price inflation was little-changed from October and November, and slightly above the long-run series average.
The survey’s forward-looking Future Output Index, which tracks manufacturers’ expectations for production over the next 12 months, improved further from September’s low in December. Around 42% of survey respondents expect output growth at their units, with overall sentiment the strongest since June.
Companies linked positive forecasts to new products, improving US and European demand and reduced Brexit uncertainty. That said, the Future Output Index remains well below its long-run trend (71.8), and the 2019 average (67.6) is the lowest for any calendar year since the series began in 2012.
Mr Mangan said, “The softness in overseas demand is resulting in an ongoing fall in order backlogs and a build-up of stocks of finished goods. Firms have responded by cutting production levels and shedding jobs. Employment in manufacturing declined for the second month in a row in December, albeit very marginally.
“The Irish December PMI reading of 49.5 remains well above the flash PMI for the Eurozone, which is put at 45.9, and the level of 47.4 in the UK, as the stronger domestic economy helps support activity here. On a positive note, confidence among Irish manufacturers regarding future output rose to a six-month high in December, suggesting that firms expect activity to pick up in 2020.”
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