GROWTH

Private sector activities at five-month high as businesses recover

Staff salaries were also up, but only slightly overall

In Summary
  • PMI rose in October to 51.4 points compared to 50.4 points in September. 
  • Output charges rose solidly and at the fastest rate since the beginning of the year.
Loaders place finished cement onto the track at the Athi River Bamburi Cement /FILE
Loaders place finished cement onto the track at the Athi River Bamburi Cement /FILE

Private sector activity was higher in October, as output growth strengthened for the first time in five months and new business continued to grow.

The monthly Purchasing Managers’ Index (PMI) posted its highest reading in October at 51.4 points compared to 50.4 points in September. 

PMI is a weighted average of new orders, output, employment, suppliers’ delivery times and stocks of purchases. 

Readings above 50 signal an improvement in business conditions on the previous month, while readings below 50 show a deterioration.

"In October, business activity expanded at the fastest pace in the past five months driven by higher demand and output. The improvement in domestic demand was driven by increased client spending primarily in wholesale and retail trade,'' fixed income and currency strategist at Stanbic Bank Kuria Kamau said. 

He added that improvement in domestic demand was driven by increased client spending primarily in wholesale and retail trade.

The index signalled a modest improvement in business conditions and one that was slower than the series long-run trend.

New business volumes continued to rise at Kenyan firms, extending the current run of growth that began in May.

New orders received rose for the sixth month in a row in October, amid reports of increased economic activity and client spending.

The expansion was particularly strong among service providers, with wholesale & retail firms also seeing a gain.

This drove the overall rate of new order growth to the highest since May, despite lower sales in the agriculture and construction sectors.

The most recent increase was the fastest in five months, which panelists linked to greater customer spending as cash flow and economic conditions improved.

There was a particularly robust rise in sales across services firms, but demand fell in the agriculture and construction sectors and was unchanged in manufacturing.

Output struggled to keep up with demand, leading to a slight increase in outstanding work. Employment levels were raised for the sixth month running as firms looked to boost overall capacity.

The rate of job creation slowed and was only modest, as businesses continued to project a relatively subdued outlook for future activity amid uncertainty over how the pandemic will impact spending decisions.

The monthly data by IHS Markit on behalf of Stanbic points to a solid and faster increase in purchasing activity at Kenyan firms, linked to efforts to expand stock levels.

Delivery times improved, but at a lesser extent compared to September due to mentions of shortages at some vendors.

Weak material supply, higher VAT and rising energy prices combined to push total input costs higher in October, with the latest mark-up the quickest since July.

Staff salaries were also up, but only slightly overall. 

Consequently, output charges rose solidly and at the fastest rate since the beginning of the year as firms protected protect profit margins by passing additional costs through to their clients.