GROWTH

Private sector activities rise to a 10-month high in November

Buoyed by reopening of the economy following the lifting of the curfew.

In Summary

•The month saw the fastest rise in output and new orders since May.

•It however had the weakest improvement in supplier performance for 18 months.

Operations at the Bamburi Cement Athi River plant /FILE
Operations at the Bamburi Cement Athi River plant /FILE

Private sector activity recorded a strong performance in November expanding at the fastest rate in 10 months, the Stanbic Bank’s monthly Purchasing Managers’ Index indicates.

This came with the fastest rises in output and new orders since May as business activities increased after the lifting of the 10pm to 4am curfew.

During the month, firms enjoyed a sharp increase in demand.

Stronger rises in output and new orders contributed to the fastest uplift in employment for two years, which helped firms to reduce their backlogs.

However, input costs continued to rise at a sharp pace, driving the quickest increase in selling prices since the beginning of the year, whilst confidence in future output remained historically weak.

The PMI reading was at 53.0 in November up from 51.4 in October to a ten-month high, signaling a solid upturn in the health of the private sector economy.

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

New orders rose steeply and at the fastest rate since May, which businesses often related to an increase in demand from the lifting of night-time curfew measures.

This led to a solid upturn in activity that was also the strongest seen for six months.

Stanbic Bank’s fixed income and currency strategist, Kuria Kamau, notes domestic demand increased rapidly, in response to the lifting of the curfew, with the main beneficiaries being firms in services, trade and construction.

“Firms, in turn, increased their output significantly to meet the rising demand ahead of the festive period, resulting in the first reduction in work backlogs in the past five months,” said Kamau.

Sector data suggested that the expansion was largely driven by the construction, services, and wholesale-retail sectors.

However, agriculture and manufacturing posted a decline in output.

Meanwhile, private-sector employment was reportedly boosted by higher sales, with the latest data signaling the quickest rise in job numbers for exactly two years.

The increase in staff capacity allowed firms to reduce their backlogs for the first time since May.

Input purchasing also rose to a greater extent in November, particularly as some businesses looked to stockpile goods amid expectations that demand will improve.

However, there were increased reports of delays to supplier deliveries amid freight slowdowns and supply shortages.

Subsequently, the overall improvement in vendor performance was the weakest in one-and-a-half years.

Supply shortfalls also contributed to a sharp rise in purchase prices during November, which panelists found was exacerbated by exchange rate weakness and higher taxes.

Wage inflation and rising fuel prices meanwhile added to another marked increase in overall costs.

The uptick in expenses led companies to raise their output charges at the fastest pace since January.

Despite a solid improvement in business conditions, output forecasts remained subdued in November, with just over a quarter of firms expecting activity to rise over the coming year.

"The one-year outlook as reported by firms continues to remain near historical lows despite a slight improvement in November," Kamau notes.

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

It is compiled by IHS Markit from responses to questionnaires sent to purchasing managers in a panel of around 400 private sector companies.