Business conditions in private sector still improving – Stanbic

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The latest Purchasing Managers’ Index (PMI) survey data from Stanbic Bank and IHS Markit has signalled a further upturn in commercial dealings in the Zambian private sector in October 2017.

According to the report, higher underlying demand caused both output and new business to expand, though at slightly lesser rates than observed in September.

Firms reacted by expanding their capacity as workforce numbers and purchasing activity rose.

However, they were not able to accommodate all new orders as outstanding business increased for the second consecutive month.

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

The PMI registered at 53.5 in October, down slightly from 54.0 in September.

The survey found that although the rate at which business conditions improved softened from the previous month, it was the second fastest rate of improvement in the survey history.

Improvements in the health of the private sector were predominantly driven by amplified demand which allowed private sector firms to secure greater new business for the seventh successive month.

Output expanded for the fifth consecutive month in response. Encouragingly, the rate at which business activity grew was the second-fastest since the inception of the survey in March 2015.

Furthermore, the trend in new business over the past seven months caused backlogs of work to expand again.

That said, the rate at which outstanding business accumulated eased slightly from the previous month.

Firms reacted by hiring additional staff and increasing their purchasing activity in October.

Employment expanded for the sixth successive month, while purchasing activity rose at an accelerated rate.

In fact, quantities of purchases expanded at the fastest pace observed in the survey’s 32-month history.

This was also the case with stocks of purchases, which increased substantially. Vendor performance improved, in spite of the extra pressure caused by amplified demand for inputs.

Cost burdens at Zambian private sector companies continued to rise in October, driven by higher purchase cost and wage inflation.

That said, the rate of inflation was well below the series average. Despite input price inflation, firms cut their charges for the eighth consecutive month in October.

This suggested that companies offered discounts in order to further bolster demand.

Business activity in the Zambian private sector rose further in October, marking the fifth successive month of growth.

Notably, this is the longest sequence of expansion since the inception of the survey in March 2015.

Panellists predominantly commented on higher underlying demand and new customers as the main factors influencing the rise. Although the rate of growth eased from September’s record, it remained solid.

Volumes of new business received by Zambian private sector firms increased in October, as just over 30 percent of firms noted a rise.

Survey respondents linked the growth in new orders to advertisement activity that helped secure new customers. In line with the trend for output, the rate at which new orders rose eased from September’s high but was still solid.

For the second consecutive month, outstanding business rose as capacity pressures continued to build at firms operating within the Zambian private sector.

Companies attributed increased backlogs of work to marked growth in new orders. The rate of expansion in October was the second-fastest since the survey’s inauguration.

The seasonally adjusted Suppliers’ Delivery Times Index registered above the 50.0 no-change threshold in October, signalling a further improvement in vendor performance.

That said, the rate at which delivery times improved softened from September and was only marginal, with around 96 percent of firms reporting no change.

Workforce numbers at Zambian private sector firms rose for the sixth month in a row in October, with over twice as many firms reporting an increase in employment as noting a decline.

This was largely the result of heightened demand as businesses attempted to accommodate the rise in new orders by expanding employment.

Despite rising input costs, prices charged by Zambian private sector businesses fell further in October. This suggested that firms partially absorbed increased cost burdens in order to offer discounts, further stimulating demand.

That said, the rate at which prices decreased eased from September and was only modest.

Cost burdens rose further in October, as the seasonally adjusted Overall Input Prices Index registered above the 50.0 no-change mark.

Data suggested that both purchase price and staff cost inflation were behind the overall input cost increase. That said, the rate of inflation slowed from the previous month and was below the series average.

After adjusting for seasonality, purchase costs rose further in October. This marked the second consecutive month of purchase price inflation at Zambian private sector businesses.

Anecdotal evidence suggested that rising bills from suppliers was the main factor contributing to inflation. That said, the rate at which purchase prices grew softened from September.

Salary bills at companies operating in the Zambian private sector increased for the third month in a row in October.

Businesses often linked increased average staff costs to higher profits and the desire to increase salaries in order to meet the costs of living.

That said, the rate of inflation was only marginal and eased from September.

Private sector firms reacted to higher underlying demand by increasing their purchasing activity in October. Nearly 34 percent of firms reported a rise.

The latest expansion was the seventh in as many months and marked the longest sequence of growth since the survey began.

Furthermore, the rate at which buying levels grew accelerated slightly from September to a new record high.

Stocks of raw materials and other pre-production items increased further in October, with around 34 percent of firms reporting a rise.

Notably, the rate of growth was substantial and the fastest observed since the inception of the survey.

A combination of higher demand and new projects were the main factors given by respondents to explain the rise in input stocks.

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