Strong increase in sales underpins sharp rise in West Midlands output
West Midlands output continued to expand in July as demand conditions improved further amid the lifting of COVID-19 restrictions.
At 58.3, down from 64.0 in June, the NatWest West Midlands PMI 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 – was indicative of a slower but still sharp rate of increase.
The upturn was reportedly curbed by staff and raw material shortages.
West Midlands companies noted a fifth successive monthly increase in new work intakes during July. Despite easing to the weakest over this sequence, the pace of expansion remained substantial and well above its long-run average. Where sales rose, panellists mentioned improved demand conditions and the lifting of COVID-19 restrictions.
West Midlands firms reported a further increase in payroll numbers at the start of the third quarter, taking the current sequence of growth to five months. Anecdotal evidence highlighted the replacement of staff laid off earlier in the year and capacity expansion efforts. Although softer than June’s all-time high, the rate of job creation was sharp.
July data pointed to further signs of strain on the capacity of private sector companies based on the West Midlands, as outstanding business continued to expand. Survey participants indicated that strengthening demand conditions, supply-chain constraints and staff shortages were the main sources of rising backlogs. The overall rate of accumulation was marked, but eased to a five-month low.
Firms in the West Midlands reported another monthly rise in overall cost burdens at the start of the third quarter. Despite easing from June, the rate of inflation was among the sharpest seen in the near 25-year survey history. According to panellists, supply-chain disruptions, raw material scarcity and greater freight fees pushed up expenses. Manufacturing companies saw a sharper increase than their services counterparts.
Amid reports of the pass-through of rising cost burdens to clients, charges levied by private sector companies in the West Midlands increased further in July. The rate of output price inflation softened from June’s recent high, though remained elevated by historical standards. Manufacturers noted a stronger rate of increase than service providers.
Despite falling to a seven-month low in July, the Future Activity Index was still indicative of a strong degree of optimism among West Midlands companies. Panel members hope that further relaxations of travel restrictions and the end of the pandemic will support output growth in the year ahead. Some firms also indicated plans to launch new products. Concerns surrounding Brexit, raw material scarcity and the path of the pandemic restricted sentiment.
John Maude, NatWest Midlands and East Regional Board, said: “The PMI data for July showed another set of positive results for the West Midlands, with the local economy recovering further as the lifting of national restrictions induced a strong upturn in demand for goods and services.
“The slowdown in rates of expansion for sales and output is not a concern, as these are simply beginning to normalise from the records set last quarter when the economy started to open up and some pent-up demand was released.
“What is worrying, however, is that prices paid for inputs by local firms again increased substantially and the fact that these continued to feed through to final output charges and dampen business confidence. Once more, companies mentioned rising transportation fees and difficulties in sourcing key materials due to supply-chain disruptions.”
