STAFFING LEVELS in the Irish manufacturing sector contracted sharply in August as firms adjusted employee numbers to falling workloads, new data show.

The manufacturing sector remains in a state of contraction, according to the NCB purchasing managers' index (PMI) for last month. The reading of 44.9 for August, although higher than July, is still well below the 50 mark that divides growth from decline.

Employment fell for the ninth successive month among the companies surveyed. The rate of decline in staff numbers further accelerated and was the sharpest in the 10-year history of the index.

Both manufacturing output and new orders also fell. Manufacturers noted a further deterioration in demand for their products, both domestically and abroad, as the strength of the euro continued to adversely affect demand.

Overall new business has now declined for six consecutive months. "The environment for manufacturers remains extremely challenging," said Eunan King, chief economist at NCB Stockbrokers. In August, manufacturers' backlogs of work fell substantially, as the decline in new business enabled firms to clear outstanding orders. The index shows that manufacturing firms were hit by further increases in input prices such as energy and metals, although these were at a more modest rate than the previous month.

The prices charged by firms also increased at a robust pace, as firms tried to protect their margins in response to rising input costs.

The Irish PMI results for August were reflected across the euro zone, where the manufacturing sector shrank - albeit at a slightly less rapid rate than in July, when activity hit a five-year low. The sector was still hurt by the strong euro and high energy costs.

The euro zone PMI, which marked the third consecutive monthly contraction in manufacturing, will make worrying reading for the European Central Bank.

- (Additional reporting: Reuters)