The prolonged red macroeconomic indicators may be taking a toll on business performances as output and new orders recorded a second successive monthly decline in November, the latest edition of Stanbic IBTC Bank Purchasing Managers’ Index revealed.
According to the survey compiled by S&P Global and endorsed by the National Bureau of Statistics (NBS), the fall in output and new order suggests that inflationary pressure remains elevated.
Recall that the headline inflation spiked in October, setting a new multi-decade high of 27.3 per cent. Ahead of the November consumer price index (CPI) readings, due for release next week, some experts have projected the inflation rate to hit 30 per cent by December.
On the back of elevated inflation, the PMI said the decline in new orders suggested that consumers are either reluctant or unable to pay new charges. Whichever case applied, low purchases could trigger low production, which may lead to redundancy of especially factors, including labour, in the short to medium term.
The report disclosed that close 50 per cent of the respondents said they increased prices of goods and services in November even as general business conditions in the month stood at 40 points, down from 49.1 in October. A score above 50 points indicates improvement while below suggests deterioration in market condition.
“The headline PMI remained below the 50 no-change mark for the second month running midway through the final quarter of the year. The index signalled a modest deterioration in business conditions and one that was the most marked since the cash crisis in the opening quarter of the year. The overall decline in operating conditions was in large part driven by further reductions in output and new orders. Both fell for the second month running, and to greater extents than in October,” the report noted.
According to the result analysis, business activity fell strongly particularly at wholesale and retail companies, while agriculture was the only sector that posted an increase in output. It added that the “declines in output and new orders generally reflected steep price rises and the impact these had on customer demand”.
Despite the poor business environment, the report noticed that wages increased as companies struggled to help employees cope with higher living and transportation costs. Firms, it noted also, continued to expand their staffing levels with employment increasing for “the seventh month running, albeit modestly and to a lesser extent than in October”.
“Purchasing activity, meanwhile, was broadly unchanged following a fall in the previous survey period. Meanwhile, a reduction in activity meant that fewer inputs were needed than had been expected, resulting in a further build-up of stocks of purchases. Reduced demand for inputs, prompt payments and competition among suppliers meant that vendor lead times continued to shorten. Moreover, the rate of improvement hit a one-and-a-half-year high,” the PMI explained.
Worries about the impact of inflation on demand, it stated, caused business confidence to fall to the weakest since July’s record low. Business investment and plans to open new plants supported optimism that output will improve in the coming year.
The report is compiled by S&P from purchasing managers in a panel of about 400 private sector companies.
