14/07/10 - Ulster Bank PMI shows business activity fell in June

Today sees the release of June data from the latest Ulster Bank Northern Ireland PMI. The latest report – produced for Ulster Bank by Markit – indicated another difficult month for companies operating in the Northern Ireland private sector. At 45.1, down from 46.3 in May, the seasonally adjusted Business Activity Index pointed to the fastest decline in private sector activity since February. The latest decrease reflected fewer inflows of new business as well as heightened concerns regarding the economic outlook.

Commenting on the latest survey findings, Richard Ramsey, Chief Economist Northern Ireland, Ulster Bank, said:

“The latest survey continues to show the growing divergence in performance between the Northern Ireland and UK economies. The UK as a whole posted its fourteenth successive monthly rise in business activity in June whereas Northern Ireland has still not recorded growth since November 2007. Furthermore, while UK firms reported a further rise in employment levels and robust growth in new orders in June, their Northern Ireland counterparts saw the rate of decline accelerate in both these areas.

“Manufacturing continues to be the best performing sector and those firms exporting further afield, particularly outside Europe, will continue to prosper. What is concerning, however, is the accelerated fall in new orders and employment levels in the services and construction sectors. New orders in the services sector and construction industry are falling at their sharpest rates since March 2009 and June 2009 respectively. These two sectors are already in an extremely weak state and they are the most exposed to public expenditure. Given the sheer scale of the cuts coming down the line and Northern Ireland’s over-reliance on the public sector, economists may be tempted to throw a blanket over their crystal balls for now. What is clear though is that significant job losses in these sectors are inevitable.

“Whilst concern has shifted to fears over whether Northern Ireland will experience a 'double-dip' recession, it is debateable whether it actually exited recession in the first place. Given the absence of a meaningful economic recovery during the first half of 2010, unlike the UK, it now looks increasingly likely that Northern Ireland will see a further contraction in economic growth, albeit marginal, in 2010. This would represent a third successive year of economic decline and compares with just one year of contraction in the UK (2009). Therefore it is perhaps more accurate to talk about a prolonged recession rather than a double dip. In any event, even a return to growth of around 1% in 2011 will still feel like a recession as unemployment is not expected to peak until 2012.”

The main findings of the June survey were as follows:

Faster decline in new orders

The level of new business taken by Northern Ireland private sector firms continued to fall in June, decreasing at a substantial rate that was the fastest in five months. The latest fall extended the current period of contraction to thirty-one months. Where a decline in new work was indicated, respondents commonly linked this to lower market demand. Uncertain economic prospects were also cited as having curbed business and consumer spending.

Job shedding quickened

Staffing levels in the Northern Ireland private sector fell again in June, extending the current period of decline to twenty-eight months. The rate at which firms cut jobs was marked, and the fastest in almost a year. Those respondents that reported a drop in employee numbers attributed this to reduced intakes of new business and the need to lower costs.

Slower rise in average input costs; price discounting continued

June data indicated that average cost burdens rose substantially in June, albeit at a slightly slower rate than in the preceding month. Input price inflation has now been signalled for sixteen successive months. Private sector firms noted a combination of higher raw material prices, with steel and plastic mentioned in particular, as well as increased fuel costs. Nonetheless, companies responded to increased competition by lowering their tariffs in an attempt to attract new business. The latest fall was the twenty-first in as many months, and faster than in May.