Sharpest decline in production volumes for six months
There were subdued business conditions across the Irish manufacturing sector, according to the latest AIB Manufacturing Index.
December data showed a sustained reduction in new orders which contributed to the fastest decline in production volumes since June.
At 49.1 in December, down from 49.9 in November, the seasonally adjusted index posted below the 50.0 no-change mark for the third time in the past four months.
Although only indicating a marginal downturn in overall business conditions, the latest reading was the lowest since June and well below the long-run series average (52.0).
The survey found goods producers reported a sharp drop in input buying and a shift towards tighter inventory management in response to fewer workloads.
Employment nonetheless increased for the first time in four months, reflecting a more upbeat assessment of the business outlook.
Manufacturers signalled the strongest business activity expectations for the year ahead since September 2023.
David McNamara, AIB Chief Economist, said the PMI indicated that the sector lost further momentum in December.
“This marks the second consecutive month of contraction, and means activity has fallen in eight months throughout 2024. The decline in December was due to weakness in output, new orders, and purchases. Despite the fall, the Irish manufacturing PMI remains above the flash December readings for the Eurozone, US and UK at 45.2, 47.3 and 48.3, respectively.”
Manufacturers reported a renewed decline in output during December, with the rate of contraction the steepest since June.
Survey respondents generally commented on lower production requirements due to unfavourable demand conditions. Some firms also cited efforts to streamline their post-production inventories.
Latest data highlighted the fastest reduction in stocks of finished goods for five months.
He said, “Output fell sharply in December at the fastest pace since June, following a two-month period of expansion. Survey respondents cited weaker order books and sluggish demand conditions.
“On new orders, the trend remained weak, with declines in total orders and export orders. Exports were particularly soft, with the UK and Eurozone cited as key drivers of the decline in December,” he said.
“Despite the muted demand backdrop, hiring moved back into expansionary territory for the first time in four months as firms planned for new projects and investment plans. However, despite the positive signs on employment, purchasing activity and stock building by firms continued to fall in December.”
Incoming new work decreased for the second month in a row during December. However, the rate of contraction was only marginal and less marked than in the previous month.
Manufacturers widely suggested that subdued business and consumer spending had an adverse impact on their order books. Weak export markets were a further headwind to sales pipelines, mostly due to lacklustre economic conditions in the UK and euro area. Total new business from abroad decreased to the greatest extent since April.
Goods producers curtailed their input buying in response to lower volumes of new work in December. The latest decline in purchasing activity was the steepest for eight months. Manufacturers also reported tighter inventory management and efforts to improve working capital efficiency. This led to the sharpest downturn in stocks of purchases since January.
Despite softer demand for manufacturing inputs, the latest survey indicated a deterioration in vendor performance for the fourth consecutive month. Longer delivery times were linked to transportation delays and a lack of spare capacity among suppliers.
Average cost burdens increased at a solid pace in December, with the rate of inflation edging up from the five-month low seen in November. Manufacturers noted higher prices paid for a range of raw materials, as well as greater transportation costs.
Meanwhile, factory gate prices also increased at a solid pace in December, albeit at a slower rate than in the previous month. Some firms suggested that competitive pressures and subdued customer demand had constrained pricing power.
There were positive trends in terms of staff hiring at the end of 2024. The latest survey indicated a rise in employment for the first time in four months, although the rate of job creation was only marginal. Greater workforce numbers were attributed to longterm business investment plans, new project starts, and hopes of a broader turnaround in customer demand.
December data pointed to strong optimism regarding the outlook for business activity over the next 12 months. Around 50% of the survey panel anticipate a rise in production volumes, while only 6% foresee a decline. This signalled the highest degree of positive sentiment since September 2023.
Confidence was linked to new product launches, expectations of a rebound in business conditions and expansion in overseas markets, despite some concerns about looming US tariffs and global trade tensions in 2025.
Article Source – Sharpest decline in production volumes for six months – AIB PMI – RTE
