West Midlands economy stagnates as output declines

BUSINESS activity in the West Midlands stagnated during March with latest figures showing the region’s private sector economy stayed exactly on the dividing line between growth and decline.

The latest West Midlands PMI report showed output was static with the Lloyds TSB West Midlands Business Activity Index – which measures the combined output of the region’s manufacturing and service sectors – ending the month at 50.0, down marginally from 50.7 in February.

Any figure above 50.0 represents growth and anything below it, decline.

Activity was flat despite a stronger increase in new business and a further, albeit slower fall in backlogs of work. Companies signalled another modest rise in staffing levels, while rates of input and output price inflation picked up.

The stagnation brought to an end a three-month period of expansion for the private sector. Higher activity at service providers was offset by a decline in manufacturing output. The region performed worse than the UK average, where a moderate increase was signalled.

Output failed to rise despite a solid increase in the level of new business received by West Midlands companies during March. Growth of new work was the fastest for just under a year, and above the UK average. Panellists compiling the report commented that an improved demand environment and increased client willingness to spend had boosted inflows of new work.

As was the case throughout the first quarter of 2013, payroll numbers in the West Midlands private sector increased during March. That said, the rate of job hiring eased slightly since February and was modest overall. Employment growth was registered in both the manufacturing and service sectors.   

Higher staffing levels helped companies make further inroads into their backlogs of work during the month. Outstanding business was down for an 11th consecutive month, although the pace of decline eased to the weakest since last September.
 
The rate of input price inflation quickened last month, reaching a 10-month high. Panellists commented that sterling’s recent depreciation had raised the cost of imported items. Output prices also increased at a faster pace, with the latest rise the sharpest since September 2011.   
     
Andy Youngman, area director for Lloyds TSB Commercial Banking in Birmingham, said: “While business activity came to a standstill in March, a rise in new work offered reassurance that the underlying situation remains positive for the region’s private sector economy.

“This was backed up by continued job creation across the region, indicating that companies remain confident in their outlook. However, cost pressures increased as the weaker pound led to higher input costs, in turn leading companies to raise the prices charged to consumers.”