Business index up in August on improved sales

The headline Purchasing Managers’ Index improved to 51.1 from 50.6 in July

In Summary
  • The rate of overall input price inflation softened to a six-month low.
  • Business confidence fell to a near-record low.
A tractor ferrying harvested cane to Sony Sugar Factory near Awendo town.
A tractor ferrying harvested cane to Sony Sugar Factory near Awendo town.
Image: KNA

Business conditions in the Kenyan private sector economy improved for a fourth straight month in August, with firms witnessing a faster expansion compared to July.

The headline Purchasing Managers’ Index (PMI) for August rose marginally to 51.1 to remain above the neutral mark of 50 points. It was at 50.6 points in July. 

 Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

According to the monthly data, the headline index was partially driven by an acceleration in new order growth in August. Sales rose in four of the five monitored sectors but were unchanged among manufacturing firms.

"In August, the pace of the recovery in business conditions accelerated; driven by higher levels of demand and employment,'' Kuria Kamau, fixed income and currency strategist at Stanbic Bank said. 

Job creation also strengthened, but output rose at the slowest rate in four months and business confidence fell to a near-record low.

After climbing sharply in July, the pace of input cost inflation eased in August, leading firms to increase their charges at the softest rate in 2021 so far.

Even so, the reading signaled only a marginal improvement in business conditions that was slower than the average seen since data collection began in 2014.

According to survey respondents, the recovery in market activity after the Covid-19 lockdown drove an improvement in cash flow and customer demand.

The rise in sales led companies to expand output for the fourth month running in August, though the rate of expansion slipped to the weakest recorded in this sequence.

Despite the higher activity, there was a further accumulation of backlogs of work, which in part encouraged companies to add to their workforces.

Purchasing of inputs rose at a quicker, but only modest, pace midway through the third quarter, as firms commented on the need to facilitate higher sales and add to their inventories.

Strong competition among vendors continued to drive wait times for inputs down, although material shortages and road problems meant that the latest improvement was the slowest since April.

A recent increase in taxes on products and imported goods continued to push purchasing costs higher in August, but the rate of inflation cooled markedly from July.

Notably, the rate of overall input price inflation softened to a six-month low.

Consequently, fewer firms raised their output prices during the month, with the latest uptick the slowest recorded in 2021 so far.

Finally, the outlook for future activity slipped to almost the weakest in the series history over August and was only slightly above April's record low.

Reports of ongoing economic instability linked to the pandemic meant that only around one in five surveyed firms projected output to grow over the next 12 months.