Further decline in region’s output hits employment

Output of goods and services across the West Midlands private sector contracted for the fourth month in a row in September.

Latest Regional PMI data from NatWest showed that employment was also down, falling to the greatest extent since 2009, as firms reacted to a renewed decline in new orders.

On the cost front, the weak pound contributed to a rise in businesses’ input prices, though the rate of increase remained the lowest nationally.

The headline West Midlands Business Activity Index – a seasonally adjusted index that measures changes in the combined output of the region’s manufacturing and service sectors – slipped to 47.3 in September from August’s 47.5, bringing it closer to the ten-year low seen in June. A reading below 50 signals contraction.

Broken down by sector, the survey showed that the main area of weakness was manufacturing.

Output of goods and services also fell across the UK as a whole (49.3) in September, dropping only modestly but to the greatest extent since July 2016, nevertheless.

After seeing orders books rise in each of the previous two months, firms in the West Midlands reported renewed weakness in demand in September. Manufacturers in particular reported a drop in new orders, which they linked to less interest from both international and domestic clients, including those in the UK construction sector.

Pressure on business capacity remained low in September, as evidence by a further marked decrease in the volume of outstanding orders across the private sector. As such, firms cut staffing numbers for the second month running, with the rate of job losses accelerating from the modest pace seen in August to the quickest since December 2009.

Alongside falling workplace activity, another factor leading firms to reduce staffing numbers was a need to control rising costs. Average input prices rose to the greatest extent for four months in September, buoyed in part by the weak pound. That said, as was the case in August, cost inflation in the West Midlands was the lowest among the 12 regions monitored by the survey.

Competition for new work meanwhile restricted firms’ ability to pass on higher costs to clients, with average charges for goods and services rising only modestly and at one of the weakest rates over the past three years.

September’s survey revealed that business confidence in regard to the year-ahead outlook for activity remained historically subdued. That said, expectations did improve slightly from August and were more positive than across the UK as a whole.

John Maude, NatWest Midlands & East regional board, said: “Output of goods and services in the West Midlands has fallen consistently throughout the third quarter of the year, marking the region’s most challenging period economically since the financial crisis. And with underlying demand faltering in September, more businesses have scaled down their staffing capacity in a bid to cut costs.

“Local businesses report that the uncertain economic and political backdrop is creating caution among clients and weighing on investment, which isn’t a local phenomenon but merely mirrors trends further afield across the UK as a whole and globally. Firms in the West Midlands remain more optimistic about the future than most.”