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PMI Contracts As Businesses Suspend Employment To Cut On Spending

BY Soko Directory Team · October 4, 2023 12:10 pm

The Stanbic Bank Kenya PMI slid back into negative territory at the end of the third quarter, as firms saw a sharp contraction in new orders following a brief respite in August.

Elevated inflationary pressures and rising fuel bills acted to dampen client sales, whilst also leading to the second-fastest rise in input costs in the survey’s near-decade history.

Businesses responded by reducing their output levels solidly during September and made cuts to both employment and inventories for the first time in seven months.

Selling charges were meanwhile raised sharply, as firms looked to pass costs through to customers. The headline figure derived from the survey is the Purchasing Managers’ Index™ (PMI).

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

After signaling an upturn in operating conditions for the first time in seven months in August, the headline Kenya PMI returned to contraction territory in September. The index dropped from 50.6 to 47.8, indicating a moderate deterioration in the private sector economy.

Output and new order volumes both declined for the seventh time in eight months throughout September. As seen in recent months, survey participants largely attributed the contractions to rapid price increases, which led to both intense cost pressures and a drop in customer demand.

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Declines in output and sales followed fractional rises in August which were largely driven by an abating of political demonstrations. Detailed sector data pointed to a considerable downturn in manufacturing output, alongside contractions in services, wholesale & retail and construction.

Bucking this trend, the agriculture sector saw output and new orders expand, although rates of growth had softened from earlier in the year. Kenyan firms meanwhile reported another marked rise in input prices in September, with the rate of inflation even accelerating to the second-highest on record.

Anecdotal evidence indicated that currency weakness and higher fuel bills were mainly behind the rise. Output charges were raised sharply accordingly, albeit to a slightly lesser degree than August’s 14-month high.

Demand weakness led to a renewed drop in firms’ purchasing activity during September, resulting in the first decrease in stock levels for seven months.

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The fall in inventories also came amid a slight lengthening of delivery times, as price pressures resulted in cash flow issues at some vendors. Likewise, Kenyan businesses reduced their headcounts for the first time since February, although the decrease was only slight overall.

Firms signaled that lower new order inflows and a subsequent drop in backlogs had led them to cut labor capacity. Looking ahead, firms maintained positive expectations for future activity in September, with optimism little changed from August’s five-month high albeit still weak in a historical context.

Overall, 19% of survey respondents forecasted output to grow over the coming 12 months, with panel reports mainly linking this to expansion plans.

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Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system. Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

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