Today sees the release of July data from the Ulster Bank Northern Ireland PMI®. The latest report – produced for Ulster Bank by S&P Global – pointed to a renewed decline in business activity in Northern Ireland as demand continued to falter. Firms continued to increase their staffing levels, however. Meanwhile, a further softening of inflationary pressures was seen at the start of the third quarter.
Just like the summer weather, business conditions took a turn for the worse in July. Following a notable softening in new orders during the second quarter, local businesses started the third quarter with activity falling for the first time in six months. The deterioration was broad-based with three of the four sectors contracting. Only services activity managed to hold up in July, albeit flatlining. The near-term outlook is for a further softening in demand with new orders declining for the second month running. All four sectors posted a fall in orders with the pace of decline the most marked within the construction and retail sectors. The falloff in new demand was most notable within export markets.
While price pressures have hit demand in recent months, it is encouraging to note that inflationary pressures continue to moderate. Input cost inflation eased to a 38-month low with manufacturers recording their sharpest fall in their input prices since the survey began. This has led manufacturers to lower the price of their goods for the second month running. Inflationary pressures remain more stubborn within the construction and service industries. Both these sectors, unlike retail and manufacturing, reported input cost and selling price inflation well above the average rates pre-pandemic. Firms reliant upon imports from abroad will be pleased to see the ongoing improvement in global supply chains.
Despite a notable softening in demand, firms continued to increase their staffing levels. All four sectors boosted their headcounts last month, albeit the pace of hiring slowed relative to June.
Business conditions may have taken a turn for the worse in July but sentiment amongst local firms for the year ahead has actually picked up. The interest rate outlook has improved slightly but the dark cloud of no Stormont Executive looks set to remain anchored over the economy for the foreseeable future. Whether the new rise in optimism is well founded or misplaced – time will tell.
The main findings of the July survey were as follows:
The headline seasonally adjusted Business Activity Index posted 48.2 in July, falling below the 50.0 no-change mark for the first time in six months following a reading of 52.5 in June. The decline in activity signalled by the index was modest, and linked by firms to demand weakness and the impact of inflation. The fall in output in Northern Ireland compared with a marginal increase at the UK level. Market uncertainty and price pressures resulted in a second consecutive monthly decline in new orders, with the rate of contraction accelerating from that seen in June. Meanwhile, new export orders also fell at a sharper pace.
Companies continued to increase their staffing levels, although the rate of job creation eased to a six-month low. Panellists reported the filling of vacancies and efforts to expand capacity. Higher workforce numbers helped firms to be able to clear outstanding business more quickly than new orders were received, thereby leading to a sharp and accelerated reduction in backlogs of work.
Inflationary pressures continued to moderate in July, with rates of increase in input costs and output prices easing to the slowest in 38 and 34 months respectively. Finally, hopes for a recovery in demand over the coming year supported optimism in the 12-month outlook for business activity. In fact, sentiment was at a three-month high.