Marked improvement in operating conditions during August
Data collected 13-29 August
• PMI rises to 54.6 in August
• Faster expansions in output and new business
• Overall input price inflation at six-month high
Operating conditions across Kenya’s private sector improved at a marked pace during August, reflecting sharper rises in output and new orders. In response to improved demand conditions, firms raised their staffing levels during August. On the price front, firms faced the fastest rise in overall input costs since February. Although solid, output charge inflation eased for the third successive month.
The headline figure derived from the survey is the Purchasing Managers’ Index™ (PMI™). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
Commenting on August’s survey findings, Jibran Qureishi, Regional Economist E.A at Stanbic Bank said:
“As we pointed out last month, there was no need to panic. The seasonally adjusted PMI recovered to 54.6 in August after falling to a six-month low in July. The recovery in output and new orders helped counterbalance cost pressures that have re-emerged over the past couple of months. Going forward, if the VAT on fuel products stays in place, there will probably be a notable second round impact in the economy. However, authorities may soon come to terms with the fact that painful tax measures are symptomatic of excessive and unrelenting expenditures.”
The main findings of the August survey were as follows:
The seasonally adjusted PMI rose from July’s six-month low of 53.6 to 54.6 in August. This was indicative of a marked improvement in the health of the Kenyan private sector economy.
Output rose for the ninth month in succession during August. Moreover, the rate of expansion accelerated from July’s recent low and was sharp overall. Higher inflows of new orders reportedly boosted output.
New orders also rose for the ninth consecutive month in August. The rate of growth quickened from July’s six-month low and was stronger than the trend seen for the current sequence. Meanwhile, new export orders continued to rise. Despite softening from July’s four-month high, the latest upturn was sharp overall.
As has been the case since December 2017, Kenyan private sector companies raised their payroll numbers in August. Panellists associated higher employment with increased output requirements. Despite quickening from the preceding month, the rate of expansion remained modest.
Purchasing activity rose during August, thereby extending the current period of expansion to nine months. Moreover, the rate of expansion picked-up from June’s six-month low and was sharp. Meanwhile, Kenyan private sector companies raised their pre-production inventories at the sharpest pace since March.
On the price front, Kenyan private sector companies faced higher overall input costs in August. Moreover, the rate of inflation was the sharpest since February. Higher overall input costs mainly emanated from increased purchasing prices as staff costs rose at a modest pace. There were reports that raw material shortages led to higher input prices. Fuel and food were among the key items reported to have increased in price.
August data indicated that firms raised their output charges for the ninth successive month. Panellists reportedly raised their output charges to pass on higher input costs to clients. That said, the rate of inflation eased to the weakest since the end of 2017.
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