West Midlands output and employment growth hits high in August
Business activity in the West Midlands private sector increased at a strong rate during August, new figures reveal.
This came despite the slowest rise in new orders for two years but demand pressures were sufficiently strong to prompt firms to raise employment. Amid recent sterling weakness, input prices rose sharply, leading firms to increase output charges to protect profit margins.
The NatWest PMI Business Activity Index– a seasonally adjusted index that measures the combined output of the region’s manufacturing and service sectors – rose in August to 55.0, up from July’s four-month low of 54.2.
The latest figure was indicative of strong and quicker output growth across the West Midlands private sector. Furthermore, the expansion was sharper than that seen for the UK overall.
Private sector businesses in the West Midlands continued to face robust demand conditions in August. That said, the rate of increase in new sales was the softest for two years and weaker than the UK average. Some panellists indicated that uncertainty towards the wider UK economy had impacted order book volumes.
With new orders growing at a weaker pace, but business activity rising, firms were able to clear backlogs of work in August. Sector data pointed to an abating of capacity pressures at service providers, while manufacturers faced an increase in work-in-hand.
Sharper growth in employment was observed across the West Midlands private sector in August. In fact, the rate of job creation was solid and the fastest in five months. Furthermore, of the 12 monitored UK regions, only Yorkshire & Humberside and the North West recorded faster growth in workforce numbers.
Staffing costs were reportedly a factor driving up operating expenses during August. Sterling weakness, as well as higher food and fuel costs, also contributed to another sharp monthly rise in input prices.
To guard against margin erosion, firms passed on part of the cost burden rise to clients by raising output charges. Although the rate of inflation slowed since July, it remained notably faster than that for the UK as a whole.
Looking ahead, private sector companies in the West Midlands retained a positive outlook towards business activity over the coming year. However, although the degree of confidence strengthened for the first time since April, it was the second-weakest on record amid reports of Brexit- and economic-related uncertainty.
John Maude, NatWest Midlands & East regional board, said: “Relative to the UK overall, private sector companies in the West Midlands continued to outperform during August. Business activity growth in the region has outpaced that seen at the national level since February, according to our survey data. Employment prospects were equally robust, with recruitment increasing at the strongest pace for five months.
“However, with demand pressures easing in August, business confidence remained at historically low levels. Indeed, the West Midlands’ status as one of the top-performing regions could be at risk if sales growth continues to soften.”
