Schools reopening lifts private sector confidence as PMI goes up

More students going back to school boosted purchasing activity seeing a rise for the first time in three months.
In Summary

Private sector optimism picked up during February, ending a two month sequence of job cuts and […]

Private sector optimism picked up during February, ending a two month sequence of job cuts and supported by preparations for a wider reopening of schools in the coming months as concerns over the general election period receded.

Posting a reading of 51.2 for February, the Stanbic Purchasing Managers’ Index (PMI) moved back above 50.0 signifying a positive outlook compared to 49.8 recorded in January.

In terms of output, there were differing trends by sector, with growth mostly seen in agriculture and industry, but construction, services and wholesale & retail reported reductions.

Responses to monthly questionnaires sent to about 400 purchasing managers in private sector companies form the basis of the PMI. Last month, survey respondents indicated that higher new orders and a return to normal following the election period had been behind the increase in activity.

Referring to the latest PMI findings, Ronald Muyanja, Head of Trading Stanbic Bank Uganda said, “The end of the election period and preparations for a wider reopening of schools supported a return to growth of new business during February. This helped lead to a rise in output, the eighth in as many months. The agriculture and industry sectors posted increases in activity, but declines were recorded elsewhere.”

The PMI is a composite index, calculated as a weighted average of five individual sub-components: New Orders (30%); Output (25%); Employment (20%); Suppliers’

Delivery Times (15%) and Stocks of Purchases (10%). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below this indicate deterioration.

The headline PMI provides an early indication of operating conditions in Uganda. The survey, sponsored by Stanbic Bank and produced by IHS Markit, has been conducted since June 2016 and covers the agriculture, industry, construction, wholesale & retail and service sectors.

With the election period leading to a downturn in business conditions, the health of the private sector improved in February. New orders and employment both returned to growth and output continued to rise. Business conditions have now strengthened in seven of the past eight months, but the latest reading is below the series average of 52.9.

A return to growth of employment was also seen in February, thereby ending a two-month sequence of job cuts. Rising staffing levels led to an increase in employee expenses.

Staffing levels returned to growth midway through the first quarter, having decreased in each of the previous two months. Respondents indicated that they had increased employment in response to a renewed expansion of new orders. Four of the five categories posted job creation, with services the only exception.

Purchasing activity rose for the first time in three months. Higher input buying, combined with positive expectations around future new order inflows, led to an accumulation of inventories.

Both the agriculture and wholesale & retail sectors expanded their input buying during the month.  But at the same time, purchase costs also went up with higher prices for items such as foodstuffs, stationery and liquid soap recorded.

Overall input prices increased in February, with all monitored sectors posting inflation. Respondents indicated that higher prices for utilities such as electricity and water had contributed to overall inflation. Meanwhile, both purchase prices and staff costs also rose.

Higher utility prices also added to overall input cost inflation. In response to increasing input prices, companies raised their own selling prices for the second month running. Meanwhile, suppliers’ delivery times shortened for the first time since November last year.

Expectations of increases in new business supported optimism that activity will rise over the coming year. Around 85% of respondents expressed confidence in the 12-month outlook.

However, with the Covid-19 pandemic continuing to impact international demand, new export orders decreased in February. New business from abroad has now fallen in each of the past six months.

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