Today sees the release of May data from the Ulster Bank Northern Ireland PMI . The latest report – produced for Ulster Bank by Markit – pointed to the economy remaining in growth territory, although the rate of expansion in business activity slowed for the second month running as new orders were broadly unchanged. Employment also increased at a weaker pace during the month.

Northern Ireland’s brief period of out-performing the UK as a whole appears to have come to an end. Local firms continued to report rising levels of activity and job creation, but a significant slowdown has been in evidence. Indeed, Northern Ireland reported the sharpest slowdown of all the UK regions last month, with the rate of growth in business activity and employment easing to 9-month and 8-month lows respectively. With new orders flat in May, the near-term outlook suggests more of the same to come. It is worth noting that the rates of growth in business activity, new orders and employment are well below the rates of growth recorded prior to the downturn.

The headline indices however conceal contrasting performances at a sector level. The sharp slowdown in business activity, new orders and employment growth is largely attributable to a marked deterioration in business conditions within the construction sector. Locally-owned construction firms reported the fastest rate of decline in business activity since March 2013. The dramatic fall in new orders in April accelerated in May, with the rate of decline the steepest since November 2012. Construction firms also cut their staffing levels for the first time in eight months. A marked slowdown in the GB construction market appears to have hit local firms hard.

Outside of construction, the manufacturing industry reported a further decline in both output and employment levels  in May. On a positive note though, manufacturing orders have been on the rise in recent months and hit a 10-month high in May, suggesting a more positive picture for output in the months ahead. The retail sector remains the most resilient to the slowdown, with the sector maintaining its strong rates of growth in employment and sales. A word of caution, however; retailers reported a notable slowdown in new orders in May. The wider services sector continued to report rising levels of activity and employment growth, albeit at weaker rates relative to April and below the long-term average.

Overall, business activity is rising albeit at a subdued rate, and it is the Northern Ireland construction sector that provides most cause for concern. This slowdown is likely to continue into the third quarter of the year, but much will depend on macro issues, including the performance of the UK economy, and the forthcoming referendum on the  UK’s membership of the EU.”

The main findings of the May survey were as follows:

The headline seasonally adjusted Business Activity Index fell to 51.1 in May from 54.2 in April. The reading signalled a slight rise in activity, albeit the weakest in nine months. Growth was also slower than seen across the UK economy as a whole. Where output increased, this was linked by panellists to strengthening market conditions and favourable weather. New business was little-changed in May, following solid growth in recent months. New orders increased in the manufacturing, services and retail sectors, but fell sharply at construction firms. New export orders increased for the fourth month running, but the rate of expansion was only slight and the weakest in the current sequence of growth.

A lack of new business contributed to a first reduction in backlogs of work in seven months during May. As was the case with activity, growth of employment at Northern Ireland companies eased. Although rising for the sixteenth successive month, staffing levels increased at the slowest pace since last September. Where job creation was recorded, panellists mentioned positive expectations and company expansion plans.

Input prices continued to rise sharply in May as the impact of the introduction of the National Living Wage continued  to push up staff costs and some firms noted higher fuel prices. That said, the rate of inflation eased slightly from April’s 24-month high. Manufacturing posted the fastest rise in input prices of the four monitored sectors. Output prices increased for the seventh consecutive month, with the pace of inflation quickening to the fastest since February.