New orders increase for second month running in August

Latest PMI data indicated a second straight month of growth in the Kenyan private sector in August, with output and new orders rising solidly amid looser travel restrictions. Exports grew at a record rate, but job numbers fell amid efforts to cut wage costs. Sentiment improved for the first time since February, but remained relatively weak.

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.

The headline index posted at 53.0 in August, signalling a second consecutive month of improving business conditions in the Kenyan private sector economy. Despite falling from 54.2 in July, the index suggested that the rate of growth remained solid overall.

Kenyan firms reported a sharp upturn in new orders during August, as the easing of coronavirus disease 2019 (COVID-19) related restrictions led to rising customer demand. The rate of expansion slowed from July's recent high, but remained marked.

Notably, export sales growth reached a new record high, as the reopening of international travel supported an uplift in tourism. Firms also reported that new orders from Europe increased strongly.

In a similar fashion, output at Kenyan companies grew for a second consecutive month in August, albeit at a softer rate than seen in July. The rise in demand reportedly helped businesses to expand and recover some output lost during the lockdown period.

Companies increased their purchasing activity solidly midway through the third quarter, amid efforts to build up stocks as firms anticipate demand will grow further in the coming months. Purchased items were delivered at a quicker pace, as lead times shortened for the third month running.

On the other hand, employment continued to fall in August, reflecting concerns that costs remained too high. The decrease in jobs was slightly faster than in July, but only marginal overall. Backlogs meanwhile rose at a modest rate.

Higher input demand led suppliers to raise their prices during August, with the rate of purchase cost inflation accelerating to a four-month high. Fuel prices also increased at some companies. Conversely, staff costs fell for the fifth month in a row, albeit at the softest pace in this sequence.

As overall input prices rose, firms passed these on to customers with a slight increase in selling charges. The rate of inflation slowed from July, however.

Business expectations improved for the first time in six months in August, amid plans for new investment and branches. Sentiment remained relatively subdued though, ticking up only slightly from July.

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