Businesses recorded decline in new orders in January - report

There was a general decline in economic activity during January due to a reduction in new orders. PHOTO | FILE

Summary

• The analysis conducted under the monthly Purchase Managers Index (PMI) for the month of January, indicates that election fears slowed down company orders, which is a key measure of economic performance.

By MARTIN LUTHER OKETCH

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There was a marked decline in trade activities during January with economic fundamentals falling to the lowest level in over two years, according to a business environment analysis conducted by Stanbic Bank.

The analysis conducted under the monthly Purchase Managers Index (PMI) for the month of January, indicates that election fears slowed down company orders, which is a key measure of economic performance.

The slowdown scaled back on purchasing activities, forcing the Purchase Managers Index to fall below the 50 mark, the first time since it was launched about two years ago.
General business activity, according to the index suffered under election related uncertainty as businesses deployed a wait and see approach before they could place orders.

During the period running through January, the index fell to 49.8 from 51.2 in December.
The business environment had been improving since the lifting up of the lockdown in June that had been imposed by government in April to control the spread of Covid-19.
However, the January PMI ends a six month sequence of expansion.

Respondents, according to the index, said elections could have been the cause of a slowdown in business while others blamed a mixture of Covid-19 and electioneering.  The index also noted a further scaling down employees as companies continue to suffer the blunt of Covid-19, which has been ravaging the country since February.
The index, which sources data from 400 respondents, noted that manufacturers, services, wholesale and retail sectors all registered a decline in new orders during January.

During the period, companies also reported a general increase in the price of goods and services as many attempted to pass on high cost burdens to customers. The index noted an increase in the prices of cement, paper, stationery, sugar and other food products.
However, the survey indicates that despite some signs of weakness at the start of the year, companies remain confident that output will rise over the next 12 months.

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For instance, in the agriculture and industry sectors, output rose whereas in construction, services, wholesale and retail decreased.
Ms Ferishka Bharuth, the Stanbic Bank Africa Regions economist, said that whereas there was a general decline in business activities, agriculture and industry registered increased activity.

“New orders dropped in January, thereby ending a six-month sequence. Respondents said, a lack of client activity around the election period was one factor acting to reduce new business. The election period also dampened activity at some monitored companies, but overall output continued to increase. Growth was recorded in the agriculture and industry categories, but falls were seen in construction, services and wholesale and retail,” she said.

The PMI is a composite index, calculated as a weighted average of five individual sub-components, which include new orders (30 per cent), output (25 per cent), employment (20 per cent), suppliers’ delivery times (15 per cent and stocks of purchases (10 per cent).

Readings above 50 signal an improvement in business conditions, while below 50 show a deterioration.

Optimism  
Whereas there was a drop in business activity during January, confidence around new order inflows, particularly following the election period, presents optimism with at least 84 per cent of respondents expressing a positive outlook.