Ireland: Manufacturing PMI drops in February but remains robust nonetheless
The Investec manufacturing Purchasing Managers’ Index (PMI) declined from January’s 57.6 points to 56.2 points in February. Despite the drop, the indicator remains comfortably above the 50-point threshold that separates expansion from contraction in the manufacturing sector, where it has been for over four and a half years.
February’s print reflected a strong expansion in output buttressed by higher new orders, particularly from overseas markets. Although the rate of output growth decelerated somewhat in February, it remained robust. Growing evidence suggests that manufacturing firms are facing capacity constraints, as backlogs of work continued to accumulate, and suppliers’ delivery times lengthened at the second-fastest pace in survey history. Firms responded to additional work volumes and expectations of increased future demand by increasing the pace of hiring. As higher prices for raw materials pushed input prices higher, manufacturers moved to pass the increased cost burden onto consumers.
Assessing the latest one-year outlook reading, Investec Chief Economist for Ireland Philip O’Sullivan commented:
“We also note that the Future Output index of expectations increased at its fastest pace in 14 months, which suggests that December’s record Manufacturing PMI reading may be eclipsed in the coming quarters. 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”