Economic activity in the manufacturing sector ascended to a new peak last month on the back of record rates of growth in output and new orders and another severe lengthening in suppliers’ delivery times, according to fresh data.
The latest AIB Ireland Manufacturing PMI signalled a fresh record improvement in the Irish manufacturing sector in May, with demand booming as the economy began to reopen.
Meanwhile, survey indicators for employment, backlogs, input prices and output prices were all either the highest or second-highest on record.
The headline PMI is a composite single-figure indicator of manufacturing performance. It is derived from indicators for new orders, output, employment, suppliers’ delivery times, and stocks of purchases. Any figure greater than 50 indicates overall improvement of the sector.
The PMI rose for the seventh time in eight months in May to 64.1, from 60.8 in April. The latest figure marked a new high since the series began in 1998, indicative of rapid overall improvement in manufacturing business conditions.
All five of the PMI components had positive contributions to the headline figure in May, and all except stocks of purchases exerted positive directional influences compared with April.
The output and new orders indices hit record highs, while the employment and suppliers’ delivery times indices were the second highest to date.
The volume of new orders received by Irish manufacturers rose for the third month running in May and at the fastest rate since the survey began in 1998. Companies reported strong inflows of new work as customers reopened and lockdown restrictions began to loosen.
Strong domestic sales were supported by increased demand from European and US markets, with new export orders rising at the strongest rate since July 2020.
Surging new orders led to a record rate of output growth in the manufacturing sector in May, surpassing the previous record expansion set in December 1999.
Firms sought to boost capacity by expanding workforces, with overall employment in the sector rising at the second-fastest rate in the survey history, just shy of the peak set in December 2017.
Higher production levels and staff numbers were insufficient to cope with demand, however, leading backlogs to rise at the strongest rate since data for that series were first collected in September 2002. Firms sold off stocks of finished goods to meet sales, and at the fastest rate since January.
AIB said the record increase in outstanding business in May reflected pent-up demand and severe pressure on manufacturing supply chains.
Delays from suppliers
Firms increased their purchasing activity at the fastest rate since December 1999, but suppliers’ delivery times lengthened to a degree that almost matched the survey record registered in April 2020.
About 60 per cent of firms reported delays from suppliers, with no manufacturers reporting any improvement compared with April.
Global shortages of raw materials and shipping containers continued to drive up input prices in May. Input price inflation soared to the second highest on record, just below the peak set in March 2011.
Firms reported a wide range of raw materials as up in price during the month, including steel, wood, paper, chemicals and plastics.
With input costs surging and demand improving, manufacturers raised their output prices at the fastest rate since the series began in September 2002. Output prices have risen continuously since October 2020.
The 12-month outlook for production remained close to record levels in May. The overall degree of sentiment eased only slightly from April’s peak. Firms widely expected significant levels of new business as the economy reopens and recovers from the Covid-19 pandemic.
