Region’s private sector economy in recovery even though rising costs is impacting firms

The North West private sector economy continued to recover strongly in November, despite rising cost pressures on firms which hit a new record high.

That was according to the latest Regional PMI data from NatWest showing marked rises in both activity and employment.

The headline North West Business Activity Index – a seasonally adjusted index that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors – climbed from October’s 55.3 to a four-month high of 57.6 in November.

This signalled a sharp and accelerated rate of growth, and one that was well above the historical series average.

The expansion was driven by the service sector, as manufacturing continued to struggle with supply-chain issues.

Firms in the North West reported a further rise in new business in November, signalling a continued improvement in underlying demand conditions.

The rate of growth eased slightly since October but was still solid by historical standards. Anecdotal evidence pointed to ongoing catch-up effects and increased engagement from clients.

However, the rise in new business was driven exclusively by the service sector and masked a stagnation in manufacturing order books.

After slipping to a nine-month low in October, business expectations towards future activity rebounded somewhat in November.

Overall, the degree of optimism was strong relative to the pre-pandemic trend, albeit still among the lowest in 2021 so far. Positive growth projections were linked by some surveyed firms to hopes of a continued recovery in demand, while others were confident that current supply issues, which were holding back output, would eventually ease.

November saw another steep rise in private sector employment across the North West, following a record increase at the beginning of the fourth quarter.

The pace of job creation remained among the quickest seen in the series history stretching back to 1997, supported by widespread hiring across both the manufacturing and service sectors. Surveyed firms often reported raising staff numbers in line with higher demand.

As was the case in each of the previous seven months, firms in the North West reported a rise in outstanding business (i.e. new work received but not yet completed) in November.

The recent surge in businesses’ costs showed no signs of slowing in November, with rate of input price inflation accelerating to a new record high – the third in as many months.

Anecdotal evidence suggests that higher raw material prices resulting from supply bottlenecks were exacerbated by a spike in energy costs. Increasing wages were also a factor.

Heather Waters, of the North Regional Board at NatWest, said: “Latest PMI data showed economic growth in the North West regaining some momentum in November, with the survey’s Business Activity Index improving to a four-month high.

“The upturn coincided with another strong month of recruitment as firms looked to expand capacity in line with positive growth projections.

“The performance was even more impressive given the pressure being put on firms by rising costs, which posted another record increase and led to vast rises in prices for goods and services.

“However, most data were collected before news of the Omicron variant, which brings greater uncertainty to the outlook and poses fresh risks to activity and to already-stretched supply chains.”