Source: Markit Economics

The Ulster Bank Northern Ireland PMI (Purchasing Managers' Index) report – produced for Ulster Bank by Markit – signalled that business activity fell sharply in February, denting hopes that the steep contraction at the start of the year was only a temporary snow-related set back. At 42.4, down from 43.9 in January, the seasonally adjusted Business Activity Index pointed to the fastest rate of decline for ten months.

Commenting on the latest survey findings, Richard Ramsey, Chief Economist Northern Ireland, Ulster Bank, said: “A growing concern is the increasing divergence in the economic performance of NI relative to other UK regions. All UK regions, bar NI, have witnessed a rise in private sector activity since July 2009 and a pick up in new orders has occurred for the last five months in a row. As a result, NI's Business Activity Index now trails the corresponding UK reading by more than 15 points and remains more than 11 points below the next weakest UK region - the East of England. Furthermore, since the start of 2010, the pace of decline has been steeper than in the Republic of Ireland.

 “It is now clear that the NI economy has not experienced the early 2010 recovery that we had been anticipating. This provides cause for concern given that the NI economy is in such a fragile state before the public sector recession has yet to occur. The recent bout of economic weakness has been driven by the services and retail sectors both of which will be affected by the forthcoming public expenditure cuts. The prospects remain brightest for the manufacturing sector which recorded a rise in new orders in February.

That said, the squeeze on profit margins remains most intense in manufacturing, followed by the construction sector. Looking at the private sector as a whole, NI continues to experience the most severe squeeze on profit margins of all the UK regions. This is due primarily to more competitive pressures in NI to discount prices and charges.“Given the renewed weakness in the NI economy highlighted in recent PMIs, viewed alongside the official output and labour market statistics, it is difficult to reach any conclusion other than the recession continues to hit NI harder than anywhere else in the UK. In light of the forthcoming public expenditure cuts this trend is set to continue for some time yet.”

Marked decline in new business: The level of new business taken by private sector firms fell for the twenty-seventh consecutive month in February. Despite easing from one month previously, the rate of decline in new work was still marked. Where a reduction in new work was signalled, this was often linked by panellists to weak underlying demand. There were also reports that clients continued to cut back on non-essential expenditure due to concerns about the wider health of the economy.

Job shedding persisted: Staffing levels in the Northern Ireland private sector fell again in February, extending the current period of decline to two years. The rate at which firms cut jobs was nonetheless much slower than the steep falls seen at the start of 2009. Those respondents that reported a drop in employee numbers attributed this to reduced intakes of new business and the need to lower costs.

Data signalled that outstanding business at firms operating in the Northern Ireland private sector continued to fall in February, decreasing at a substantial rate that was the second-fastest in five months. Respondents widely commented that lower levels of new business had enabled backlogs to be reduced.

Input cost inflation accelerated; price discounting slowed: February data indicated that average cost burdens rose at the fastest rate since October 2008, with prices paid for energy and fuel reported to have risen on the month. Input price inflation has now been registered throughout the past year. Meanwhile, output charges fell markedly in February, although the rate of decline was the slowest in sixteen months. Panellists widely reported reducing their charges in an attempt to stimulate sales amid increased competition. Some panellists also reported that price discounting reflected client requests for lower charges.