Private sector activity shows stabilisation in June

Business expectations for the next 12 months improved in June as the country starts to re-open post lockdown.

The headline NatWest West Midlands 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 – surged from 27.9 in May to 50.4 in June.

The latest reading signalled an increase in business activity for the first time since February, albeit only marginally.

Private sector firms in the West Midlands reported an increase in new business for the first time since February during June. That said, the rate of growth was marginal. Growth in new sales contrasted with the national trend, with only three of the monitored 12 regions, including the West Midlands, recording an increase in new business.

Business expectations regarding the outlook for output over the next 12 months improved sharply in June. The Future Business Activity Index rose eight index points to reach its highest level since February, signalling that firms on balance were more positive about year-ahead outlook than in May. Optimism was driven by higher sales projections as businesses resume operations, as well as expectations of further improvement in the pandemic situation in the coming months.

Private sector firms continued to cut workforce numbers in June, although the rate of decline slowed markedly from May. Nevertheless, the rate of job shedding remained substantial and among the quickest since the height of the global financial crisis. The fall in employment was linked to redundancies, according to anecdotal evidence.

June data indicated a further rise in spare capacity among firms in the West Midlands, as the level of outstanding work fell again, thereby extending the current sequence of reduction that began in August 2018. However, the rate of decline eased noticeably from May, albeit still steep overall. Manufacturing and service sector firms both recorded slower reductions in backlogs, with the former registering a slightly steeper decline.

Input costs faced by the private sector firms in the West Midlands declined for a third consecutive month in June. The pace of decrease was little changed from that recorded in May, and marginal overall. Reduced expenses were connected to lower prices for certain inputs such as fuel.

For the first time in four months, firms in the West Midlands raised their output charges during June. There was anecdotal evidence that manufacturers faced increased freight fees as well as greater costs for certain raw materials. The rate of increase was modest, however.

John Maude, NatWest Midlands & East Regional Board, commented: “Latest PMI data indicated a recovery in business activity across the West Midlands as the easing of COVID-19 related restrictions had a favourable effect on economic activity, with firms gradually resuming business operations.

“While the rates of growth in output and new sales were both only marginal, the latest survey data indicated a much improved overall picture across the West Midlands private sector economy. Business confidence also rose, with firms more optimistic about the year-ahead outlook in June.

“That said, a smooth recovery may not be guaranteed. Indeed, other forward-looking survey indicators were seen to be a concern. Employment continued to be reduced at a steep rate in June, albeit not as severely as in April and May. The level of backlogs also fell further, hinting that further activity growth may lose momentum if demand does not strengthen sufficiently in the coming months.”

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