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Second successive fall in activity as new business declines

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Rebecca Kincade on February 9, 2015 - 11:06 am in News

Today sees the release of January data from the Ulster Bank Northern Ireland PMI®. The latest report – produced for Ulster Bank by Markit – signalled that the Northern Ireland private sector endured a difficult start to 2015 as output, new orders and employment all fell. The latest reduction in business activity was the strongest since the end of 2012. Cost inflation moderated as a result of falling fuel prices, while companies continued to lower their output charges in a bid to maintain competitiveness.

Commenting on the latest survey findings, Richard Ramsey, Chief Economist Northern Ireland, Ulster Bank, said:
“According to the latest PMI, Northern Ireland’s private sector has not had the best of starts for 2015. Local firms reported their first simultaneous decline in output, new orders and employment since May 2013. However, economic conditions are perhaps not quite as bad as this headline suggests, at least not for all sectors. The declines in both new orders and employment were marginal. Meanwhile one decline that is welcome is the easing of inflationary pressures. Falling fuel costs have helped to push local input cost inflation down to a 31-month low. This factor, alongside competitive pressures, has led firms to reduce their prices at the sharpest rate since February 2013.

“At the end of last year, the manufacturing and retail sectors pulled the overall business activity index marginally below the expansion / contraction threshold (50.0). In January, these two sectors were joined in contraction mode by the construction industry which recorded its first fall in output in twenty months. The economy’s largest sector, services, however recorded its nineteenth consecutive month of expansion, with the rate of growth in January faster than that recorded in December.

“Service sector firms also saw their rates of new orders and employment growth quicken in January. Furthermore, the rate of service sector job creation in January was in line with the long-term average growth rate that preceded the downturn. The construction industry also increased its staffing in the latest survey, which extends the period of employment growth to seventeen months. The manufacturing industry posted a relatively modest decline in employment in January whilst the retail sector reported the sharpest fall in staffing levels.

“Following the strong rates of growth in orders in December, construction firms reported a big swing back into contraction territory in January; though it is too early to establish whether this is a blip as opposed to the start of a downward trend. Retail, however, does appear to be on a descending trajectory. Local retailers reported the sharpest fall last month with new orders contracting at their fastest rate since October 2012. The second half of 2012 was a period of relative sterling strength against the euro. However, sterling is significantly stronger today than it was in H2 2012 and is currently at a seven-year high against the single currency. As a result, cross-border retail trade will be moving in the North-South direction as opposed to South-North, which has been the dominant trade pattern for the last five-or-so years.

“Overall, the latest survey is something of a mixed bag. The continued strength of the local services sector is perhaps overshadowed by the fact that Northern Ireland’s economic recovery is continuing to diverge from the UK. The sterling / euro exchange rate is one factor that impacts local firms more than their counterparts in GB. Over the last half-decade, this exchange rate has acted as a tailwind for the Northern Ireland economy. However, in 2015 it is set to be a headwind for the economic recovery.”

The main findings of the January survey were as follows:

Second successive fall in activity
The headline seasonally adjusted Business Activity Index dipped to 48.0 in January, following a reading of 49.8 in the previous month. This signalled a second successive monthly reduction in output at private sector companies in Northern Ireland, with the rate of decline the sharpest since December 2012. The only sector to see activity increase was services. New business also decreased in January, ending a 19-month sequence of expansion.

Staffing levels decline
Employment fell for the first time since June 2013 amid reports of lower new work and attempts to reduce costs. Services and construction companies raised employment, while manufacturing and retail saw staffing levels fall. With new business declining, companies were able to work through backlogs of work.

Slower rise in input prices
The rate of input cost inflation slowed in January and was the weakest since June 2012. Although some panellists reported that staff costs had increased, others indicated that declines in the oil price had led fuel costs to decrease. Northern Ireland companies lowered their output prices for the fifth successive month, with the pace of reduction quickening to the sharpest in close to two years.

data report