The manufacturing sector stabilised last month despite a continued lull in demand and sustained reductions in output and new orders, the latest AIB Ireland manufacturing purchasing managers' index (PMI) shows.
The headline index rose from 48.7 in December to 50.1 in January as the sector returning to marginal growth -- any reading above the 50.0 no-change threshold indicates expansion.
It is the first time since October that the manufacturing industry has grown, breaking the previous two-month sequence of decline, and firms were more positive about their future, registering their strongest degree of confidence in 11 months.
"After two months in contraction territory, the AIB Irish Manufacturing PMI for January showed a stabilisation in business conditions in the sector at the start of this year," said Oliver Mangan, chief economist at AIB.
"The headline index rose to 50.1 from 48.7 in December and November. The Irish reading contrasts with the weak flash manufacturing PMIs for the US, Eurozone and UK
in January.
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"While improving, they came in at 46.8, 48.8 and 46.7, respectively, pointing to ongoing declines in manufacturing activity in those economies."
New orders have continually declined since June, but a softer reduction in order book volumes contributed to the uplift in the January PMI reading. The latest fall in new orders was the weakest of the current eight-month sequence.
Overall demand conditions remained relatively muted amid ongoing reports of a general market slowdown, and the downturn in international demand for Irish-manufactured goods sharpened last month.
Irish goods producers reportedly cut output to adjust for weak demand conditions and subsequently, for the seventh time in eight months, Irish production volumes contracted in January.
Firms also cut back on purchasing activity for the fifth consecutive month, but there was a sustained and solid accumulation in pre-production inventories.
The survey showed evidence of spare capacity in the manufacturing sector as firms last month compensated for lacking demand by working through existing orders and building up stocks of finished products.
Backlogs declined for the ninth month in a row, and at the sharpest rate since June 2020 when the country was still in the midst of the first lockdown. Post-production inventories, meanwhile rose at the second-fastest pace in survey history.
"Encouragingly, the Irish data showed the smallest fall in new orders since they first began to decline in June last year, though demand remains muted," Mangan said.
"The pace of contraction in output also eased considerably, with just a small fall in the month. Two factors helped in this regard. There was a further marked decline in order backlogs as firms cleared outstanding work, while stocks of finished goods rose for the seventh month running, recording their second biggest increase in the survey’s history."
Employment increased for the second consecutive month, albeit at a weaker level than generally seen over the past two years, and vendor performance improved most pronouncedly since July 2013 in January after 38 months of deterioration.
"Employment expanded at a solid pace, while there was a shortening of suppliers deliver times, the first seen since October 2019 in a clear sign that pressures on supply chains have eased considerably," Mangan added.
Input cost and output price inflation fell to 24-month and 22-month lows, respectively while remaining above historic averages. Reportedly, high energy and supplier prices continued to add to average cost burdens.
The overall degree of confidence in the sector was the highest since last February, with firms hoping for a general market improvement despite ongoing concerns about inflation.
