Today sees the release of October data from the Ulster Bank Northern Ireland PMI®. The latest report – produced for Ulster Bank by Markit – signalled that business activity returned to growth, although the rate of expansion was modest as total new orders were largely unchanged in spite of a substantial increase in exports. Export orders were supported by the weakness of sterling, but this also had the effect of pushing up input costs which rose substantially.
Commenting on the latest survey findings, Richard Ramsey, Chief Economist Northern Ireland, Ulster Bank, said:
“Following stagnation in September, Northern Ireland’s private sector returned to growth last month. However, the pace of growth was sluggish and weaker than all other UK regions bar one.
“Private sector firms increased their staffing levels for the 21st month in a row, albeit the rate at job creation eased and was below the UK average for the first time in 10 months.
“Perhaps the most significant aspect of the latest survey concerned new orders, and the contrasting performance of the domestic and export markets. Overall, incoming orders stagnated in October and have failed to grow since June. However, export orders expanded at their second highest rate since the survey began. This implies that domestic orders have been contracting at a significant rate.
“The converse however seems to be the case within the construction sector. Given Belfast’s crane cluttered skyline, it would appear that business conditions within the local construction market are relatively buoyant. However, despite this, and perhaps surprisingly, the PMI points rapid rates of contraction in construction output orders and employment. This is largely due to subdued demand within a major external market – i.e. GB.
“In terms of the EU referendum vote, it has proved to be a mixed blessing for firms. On the one hand, sterling’s weakness against the euro has boosted export price competitiveness. Meanwhile some survey respondents attribute increased uncertainty following the vote as negatively affecting orders.
“A weak pound may be positive for exporters but it is bad news for importers. Input cost inflation accelerated last month to its highest rate since May 2011. Manufacturers and retailers are bearing the brunt of the input cost inflation, with the former posting the fastest rise in input costs since July 2008.
“Overall, it is encouraging that the private sector remains in growth mode. What is concerning though is that the rate of employment and output growth remains relatively weak. Furthermore, the largest contributor to growth remains the retail sector. Given that inflation pressures are intensifying, these will iincreasingly come to the fore in 2017 with rising consumer prices. This will impact on consumer spending and ultimately act as a major brake on growth.”
The main findings of the October survey were as follows:
The headline seasonally adjusted Business Activity Index posted 51.9 in October, signalling a modest rise in output in Northern Ireland’s private sector. This followed a reading in line with the 50.0 no-change mark in the previous month. The overall increase in business activity was led by retail, while expansions were also recorded in the manufacturing and services sectors. In contrast, construction posted a sharp and accelerated decline in output. Total new business, meanwhile, was broadly unchanged for the second month running amid uncertainty following the EU referendum result. The weak trend in total new orders was recorded despite a near-record increase in new export orders, which surged on the back of the weakness of sterling against the euro.
A further rise in employment was recorded in October, partly in order to support growth of output. Job creation has now been registered in each of the past 21 months. Only the construction sector reduced staffing levels. The increase in output combined with stagnant new order levels led to a sixth consecutive monthly reduction in backlogs of work. That said, the rate of depletion was the slowest in this sequence.
Sterling depreciation pushed up input costs for companies in Northern Ireland during October, with the rate of inflation accelerating to the sharpest since May 2011. Manufacturers posted the fastest increase, with the latest rise the strongest in more than eight years. A number of respondents reported passing on higher input costs to customers, resulting in a further marked monthly increase in output prices in October. Retail posted the strongest rise in charges since April 2011, while manufacturing selling prices also increased considerably.
