Saudi Arabia PMI: New business growth improves during October
Today sees the release of October data from the Emirates NBD Purchasing Managers’ Index® (PMI®) for Saudi Arabia. The survey, sponsored by Emirates NBD and produced by IHS Markit, contains original data collected from a monthly survey of business conditions in the Saudi Arabian private sector.
Commenting on the Saudi Arabia PMI® survey, Khatija Haque, Head of MENA Research at Emirates NBD, said:
“The headline Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI) rose slightly to 53.8 in October from 53.4 in September, as employment and new order growth picked up. New export orders also recovered after contracting in September, reflecting increased external demand. However, output rose at the slowest rate since April, suggesting that the rise in new work has yet to feed through to actual output.
The employment index rose to 51.3 in October from 50.7 in September. While this is the highest reading since March, it still indicates only a modest increase in jobs – indeed only 3.1% of firms surveyed indicated they had hired more staff last month. Staff costs, a good proxy for wages, remained below the neutral 50.0 level for the second month in a row, pointing to fractional wage deflation on average in the private sector.
Output prices increased modestly in October after declining in the prior three months. At the same time, input costs declined slightly last month on lower purchase costs, providing some relief for firms’ margins.
Business optimism about future output increased markedly in October, with nearly half of all firms surveyed expecting their output to be higher in a year’s time, while the other half expected current levels of output to be sustained. The rise in Brent oil prices to over USD 80/b on average last month – the highest level since October 2014 – likely contributed to improved business sentiment, and the government also signaled increased budget spending in 2019 in its pre-budget statement released in October.”
The main findings of the October survey were as follows:
o Headline PMI rises to 53.8 in October, from 53.4 in September…
o…despite slowest improvement in output since April
o First fall in input costs in survey history
At 53.8 in October, up from 53.4 in September, the headline seasonally adjusted Emirates NBD Saudi Arabia Purchasing Managers’ Index™ (PMI®) – a composite gauge designed to give a single-figure snapshot of operating conditions in the non-oil private sector economy – registered above the neutral 50.0 threshold to indicate an improvement in business conditions. The latest expansion was moderate and above that recorded in September, although it remained weak in the context of historical data.
Output growth in Saudi Arabia’s non-oil private sector slowed during October. The rate of growth was the third-weakest since the survey’s inception in August 2009. That said, the expansion remained solid overall.
The latest survey data saw an acceleration in new business growth. The rate of expansion was marked overall, with October’s improvement extending the current phase of growth to six months. Furthermore, foreign demand improved following a deterioration in September.
Partly due to an increase in new order inflows, non-oil private sector businesses increased their payroll numbers at the greatest rate in seven months in October. That said, the rate of growth was only modest overall and below the series’ historical average.
October saw the first fall in average cost burdens faced by non-oil private sector businesses since the survey began. The rate of decline was slight overall and linked to competitive pressures among input suppliers and falling wage bills.
Reflecting stronger new business growth, firms ramped up their input buying at a marked pace during October. The rate of growth was unchanged since the preceding survey, and above the average seen since the implementation of VAT at the start of 2018.
Meanwhile, stocks of purchases increased once again during the latest survey period, thereby extending the current sequence of growth to six months.
Finally, business confidence towards future growth prospects hit a 58-month high during October. Anecdotal evidence suggested that firms were optimistic about the impact of business investment and new project wins.
The seasonally adjusted Output Index dipped to its third-lowest point in the survey’s nine-year history during October. That said, it remained above the 50.0 no-change mark, thereby indicating an increase in output across Saudi Arabia’s non-oil private sector. Around 13% of firms noted higher production since one month ago, compared with 2% that reported a deterioration.
October data signaled an improvement in new order inflows across the non-oil private sector. The rate of growth was above that registered in September and solid overall. That said, the latest expansion remained below the long-run average. According to anecdotal evidence, demand from both domestic and foreign sources improved during the most recent survey period.
Adjusted for seasonal factors, the New Export Orders Index registered above the neutral 50.0 threshold for the fourth time in five months during October. The rate of growth remained slight overall, however, and below the historical average. Approximately 5% of companies noted an increase in new export orders during October, compared with 1% that reported a decrease.
Backlogs of Work
Continuing the sequence recorded since June, backlogs of work rose once again during the latest survey. The rate of build-up eased for the third month running, however, with the latest increase being only fractional and the slowest in the current phase of growth. Nonetheless, some firms linked the increase to higher inflows of new business.
Suppliers’ Delivery Times
Vendor performance across Saudi Arabia’s non-oil private sector improved once again during October. That said, the rate of growth was the slowest since May and modest overall. Furthermore, the improvement was well below the historical average. Around 5% of panel respondents noted faster delivery times in October, compared with 2% that reported a deterioration.
Adjusted for seasonal influence, the Employment Index registered above the 50.0 no-change mark during October. The rate of job creation across the non-oil private sector was slight overall, albeit the strongest since March. Anecdotal evidence suggested that rising output requirements led businesses to hire additional staff.
Businesses in Saudi Arabia’s non-oil private sector reported the first increase in average selling prices since June. Moreover, the respective seasonally adjusted index reached a four-year high during October. The rate of output charge inflation was moderate and above the series’ historical average. Some firms capitalise on stronger demand by raising selling prices.
Overall Input Prices
The latest survey data signaled the first fall in average cost burdens across the non-oil private sector since the survey began in August 2009. Among the reasons given by panel members that reported a fall in input costs were exchange rate effects and competition among suppliers. The rate of decline was only marginal overall, however.
The seasonally adjusted Purchase Prices Index fell below the 50.0 no-change mark during the latest survey period, thereby indicating a fall in average purchase costs across Saudi Arabia’s non-oil private sector. Moreover, the index was at its second-lowest level, having only dropped below the 50.0 mark twice since the survey’s inception in August 2009.
Adjusted for seasonal variance, the Staff Costs Index for Saudi Arabia’s non-oil private sector registered below the 50.0 mark that delineates wage inflation and deflation for the second month running. The finding marked the first consecutive decreases in staff costs since the survey began in August 2009. The rate of decline was only fractional, however.
Quantity of Purchases
Purchasing activity in the non-oil private sector increased during October. The rate of growth was marked overall and unchanged since the preceding survey period. Some firms linked higher input buying to increased output requirements. Around 19% of firms noted a rise, compared with 8% that reported lower quantities of purchases.
Stocks of Purchases
The seasonally adjusted Stocks of Purchases Index remained above the 50.0 no-change mark in October, thereby signaling a build-up in input stockpiles across the non-oil private sector. Stocks of purchases have risen in each of the past six months. That said, the rate of growth slowed since September and was weaker than the long-run average.
October data indicated the highest degree of positive sentiment in over four-and-a-half years during the latest survey period. Exactly 49% of panel respondents noted that they anticipate higher output in the next year, with the remainder forecasting unchanged activity. Anecdotal evidence linked planned business investment and new project wins to the increase in business confidence.