Current period of growth in output extends to one year

Today sees the release of June data from the Ulster Bank Northern Ireland PMI®.

The latest report – produced for Ulster Bank by Markit – indicated that activity rose for the twelfth month running, helped by a further increase in new business. With workloads continuing to rise, panellists increased their staffing levels. Meanwhile, both input costs and output prices rose at faster rates than in May.

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Commenting on the latest survey findings, Richard Ramsey, Chief Economist Northern Ireland, Ulster Bank, said:
“The latest Ulster Bank PMI report marks the end of the first half of 2014, and it has been the strongest start to any year since the PMI first began over 12 years ago. It also effectively marks the first anniversary of Northern Ireland’s private sector recovery, with local businesses reporting their twelfth successive monthly increase in output, employment and export orders. All of these indicators experienced faster rates of growth in the last six months than in the previous six. Furthermore, the rate of growth in output, employment and new orders has accelerated in each of the last four quarters, with a number of these indicators recently posting record highs.

“It is important though to recognise that this cannot continue indefinitely. Instead, the pace of private sector growth will moderate the longer the recovery progresses and as the economy normalises. Indeed, Northern Ireland’s private sector reported an easing in the rates of growth across all key activity indicators in June. Despite this modest slowdown, the pace of business activity and rates of job creation amongst local firms remain at very robust levels, with all sectors still enjoying strong rates of expansion.

“At a sector level, Northern Ireland’s construction sector has led the way in terms of growth in recent months, with its order books filling up at a rapid rate. However, these increased workloads largely relate to work outside of Northern Ireland, primarily Great Britain, rather than as a result of a significant pickup in activity locally.

“One recurring theme amongst respondents in recent months, including the June survey, has been the increasing volume of new work stemming from the Republic of Ireland. This highlights the positive economic spillover for Northern Ireland as the recovery in its largest export market continues to gain traction. Improvements in this front, however, will also be sensitive to exchange rate movements, which affect price competitiveness. It is noted that while export orders continued to grow last month, June was the weakest month of growth in eight months. This could be strongly influenced by the appreciation in sterling which is eroding price competitiveness in export markets. Indeed, last month local manufacturing firms reduced their prices for the second month in a row.

“Overall, the Northern Ireland economy has entered the second half of the year with considerable momentum. Whilst a moderation in the rapid rates of growth in all sectors is anticipated, local firms are still expected to increase their staffing levels in response to strong demand and backlogs of work for some time yet. Northern Ireland is well on course to secure a second year of private sector recovery.”

The main findings of the June survey were as follows:

Further expansion in activity in June
As has been the case on a monthly basis throughout the past year, business activity at Northern Ireland private sector firms increased in June. The headline seasonally adjusted Business Activity Index posted 59.0, from 60.6 in May. The rate of expansion remained sharp and was slightly faster than the UK-wide average. Activity rose across all four monitored sectors, led by retail and construction. Respondents mainly linked higher activity to another increase in new business, the thirteenth in as many months. New export orders also increased, with panellists reporting greater volumes of incoming new work from the Republic of Ireland.

Marked rise in employment
Higher new orders led to a further increase in backlogs of work in June. Although slowing from the previous month, the rate of accumulation was solid and sharper than that seen across the UK as a whole. Companies responded to additional workloads by taking on extra staff. While slowing from the previous month, the rate of job creation remained marked in June. Staffing levels rose across all four monitored sectors, led by retail and manufacturing.

Faster increase in input costs
The rate of cost inflation in Northern Ireland remained much faster than the UK average in June, and picked up from that seen in May. Reasons for the latest rise in cost burdens included higher prices for energy and raw materials, and increased staff costs. Some companies were able to pass on higher input costs to their clients in June, helped by improving demand. This contributed to a fourth successive monthly increase in output prices.