The Irish manufacturing sector saw a boost to business in December as firms prepared for the end of the Brexit transition period, according to the latest Purchasing Managers Index from AIB.
Output rose at the fastest rates since July's post-lockdown bounce, and purchasing accelerated as firms sought to expand inventories to guard against a potential hard Brexit.
Suppliers' delivery times lengthened to one of the greatest extents in the survey history as a result.
The index 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 50.0 indicates overall improvement of the sector.
The PMI rose sharply from 52.2 in November to 57.2 in December. This signalled a sixth overall improvement in manufacturing business conditions in the past seven months, and the strongest growth since July.
Moreover, the five-point rise in the headline figure was the third-largest on record since the survey began, behind only those registered in June and July as the sector reopened following the first coronavirus lockdown.
As was the case in November, all five components of the headline figure were in growth territory and all provided positive directional influences on the PMI in December. The greatest uplifts came from the new orders and output sub-indices, which boosted the PMI by 2.0 and 1.7 points respectively, followed by suppliers' delivery times (+0.6), employment (+0.4) and stocks of purchases (+0.3).
New orders received by Irish manufacturers rose for the second month running in December, and at the fastest rate since July.
Firms reported improving demand and also advance orders placed by customers preparing for potential disruption following the end of the Brexit transition period. Orders related to the European auto industry were also mentioned.
Production followed the same trend as new business inflows, rising for the second month running and at the strongest rate since July. Moreover, excluding the July spike in growth, the rate of expansion in December was the fastest since September 2018. Some firms reported that production had been aided by an easing of lockdown restrictions.
Manufacturers ramped up purchasing operations at the end of 2020 both to support current workloads and to build safety stocks for 2021 as the Brexit transition period ends. The volume of inputs ordered rose the most since March 2019, contributing to the strongest increase in stocks of purchases since April 2019. Rising demand for inputs placed pressure on supply chains, however, with December data indicating the greatest lengthening in suppliers' delivery times since May (and the fourth-greatest on record). Delays were attributed to congestion at ports and on roads, and shortages of raw materials including wood in particular.
Shortages of raw materials and rising demand contributed to another round of input cost inflation in December.
The rate of inflation was slightly softer than in November, but still the second fastest of the past 22 months.
Meanwhile, manufacturing output prices rose for the third consecutive month and at a rate that remained above the long-run series average.
Manufacturers were optimistic regarding output growth over the course of 2021. Sentiment eased slightly since November, partly reflecting rising uncertainty surrounding a UK-EU trade deal, but was still the second-highest for ten months. Firms generally expect a recovery in business levels in 2021, despite the ongoing impact of the pandemic and a new UK trading relationship.