Today saw the release of November data from the Ulster Bank Northern Ireland PMI, which has revealed that the rate of expansion in activity at companies in Northern Ireland accelerated on the back of a return to growth of new business. A record rise in new export orders was signalled as companies benefited from sterling weakness. On the other hand, the rate of input cost inflation quickened again and companies raised their output prices sharply.
Commenting on the latest survey findings, Richard Ramsey, Chief Economist Northern Ireland, Ulster Bank, said:
“The first three quarters of 2016 saw a deceleration in growth in Northern Ireland’s private sector. However, following stagnation in the third quarter, the final three months of the year are shaping up to be much better. Indeed, business activity accelerated further in November, with the rate of expansion representing an eight-month-high. Meanwhile new orders returned to growth for the first time in five months with local firms’ order books expanding at their fastest rate since September 2014. This suggests the economy has regained some momentum going into 2017.
“Overall, whilst the latest survey of business conditions is positive at a headline level, it is something of a mixed bag within. The positives include export orders and the strong performance of the retail and manufacturing sectors. Meanwhile the challenges include inflation, the slowdown in employment growth and the underperformance of the services and construction industries.
“Export orders increased at a record rate in November with the pace of expansion eclipsing the previous high by a considerable margin. Sterling’s marked depreciation has boosted the price competiveness of manufactured products in export markets. Manufacturing output and new orders hit 25-month and 17-month highs respectively. The favourable exchange rate has also been responsible for a surge in cross-border shopping, sending retail sales and orders to almost 2½-year highs. Both the manufacturing and retail sectors are expanding at rates well above their pre-downturn historical averages.
“Despite their strong sales performance, retailers and manufacturers are not without their challenges. Chief amongst these is inflation. The downside of a weak currency is import price inflation. Northern Ireland’s manufacturing firms have recently seen their input cost inflation hit a 99-month high. As a result, manufacturers increased the price of their goods at the fastest rate on record. Retailers are also experiencing the highest rate of cost inflation in over eight years. Consumers should therefore brace themselves for significant price rises in 2017.
“Besides inflation, another concern is the slowdown in the rate of employment growth. Last month, Northern Ireland firms raised their staffing levels at the weakest rate since June 2015 with manufacturing and construction firms reporting job losses. Meanwhile the subdued performance of the services sector and ongoing contraction within the construction sector are worrying. The construction sector’s fortunes conceal reasonable activity in Northern Ireland but a fall-off in demand in their dominant market, GB. Both these sectors are underperforming relative to their long-term growth rates.
“Whilst it is positive that the Northern Ireland private sector appears to approaching the end of 2016 in growth mode, the imbalance in that growth, being retail-driven, is somewhat concerning. This and the prevalence of inflation will be amongst the key ‘watch-outs’ in 2017.”
The main findings of the November survey were as follows:
The headline seasonally adjusted Business Activity Index registered above the 50.0 no-change mark for the second successive month. Moreover, at 54.5, up from 51.9 in October, the index signalled a solid monthly expansion, and one that was the sharpest since March. Retail posted the fastest rise of the four monitored sectors, while growth was also recorded in manufacturing and services. On the other hand, construction activity continued to fall. New orders rose sharply, ending a four-month sequence of decline. Growth of total new orders was supported by a record rise in new business from abroad.
Backlogs of work increased for the first time in seven months amid the sharp rise in new business. Employment rose for the twenty-second successive month, although the rate of job creation was marginal and the slowest since June 2015. The rate of input cost inflation quickened to the fastest since May 2011 in November, with panellists indicating that the latest rise was principally due to sterling weakness. A number of respondents signalled the passing on of higher input costs to clients. As a result, output prices increased sharply and at the strongest pace since August 2008. Manufacturing selling prices rose to the greatest extent since the series began in January 2003.
