Business activity growth softens despite faster upturn in new orders - report

13 September 2021

The economic recovery of the West Midlands continued in August, with companies scaling up output amid a robust improvement in demand conditions.

However, 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 – fell from 58.3 in July to a six-month low of 55.2..

Local companies linked the upturn to the relaxation of Covid-19 restrictions and increased order numbers, but suggested that growth was stymied by difficulties in sourcing raw materials and finding suitable labour to fill existing job roles.

August data pointed to a sixth consecutive monthly expansion in new work intakes at private sector companies in the West Midlands.

Moreover, the rate of growth quickened from July and was above its long-run average.

According to panel members, the upturn stemmed from improved client confidence, better demand conditions, the easing of travel restrictions and increased footfall. Growth of new orders in the West Midlands was the second-strongest of all 12 monitored UK regions, behind Wales.

For the sixth month in a row, West Midlands companies noted an expansion in payroll during August.

The upturn was marked and accelerated from July.

Where job creation was reported, panellists cited greater output needs due to robust demand conditions.

The acceleration in local jobs growth coincided with a quicker upturn at the UK level.

Despite the upturn in headcounts, and in line with a sharp increase in new orders, West Midlands companies signalled an accumulation in backlogs of work during August.

In some instances, the rise was attributed to difficulties in finding suitable staff to fill current roles and ongoing shortages of raw materials.

The overall rate of expansion in work-in-hand was sharp and quickened from July.

At the regional level, only Wales posted a faster increase in backlogs than the West Midlands.

Input prices facing private sector companies in the West Midlands increased for the fourteenth month running in August.

The rate of inflation was sharp and the second-fastest since mid-2008. When explaining the upturn, companies mentioned difficulties in sourcing raw materials as well as higher airfreight, shipping and staff costs.

Mirroring the trend for input costs, prices charged for goods and services in the West Midlands rose at the second-quickest rate since July 2008.

According to survey participants, selling charges were raised due to ongoing increases in their expenses. The latest upturn took the current stretch of inflation to 15 months.

West Midlands companies remained confident regarding the 12-month outlook for business activity in August, with around 63 per cent of firms forecasting growth.

Furthermore, the overall level of positive sentiment rose to a three-month high and was above its historical average.

Optimism was pinned on hopes of an end to the pandemic amid growing vaccine coverage.

Panel members expect new client wins and intend to launch new products and services.

John Maude (pictured), NatWest Midlands and East regional board, said: “While West Midlands companies were able to comfortably secure new work in August, they struggled to fulfil orders and saw their levels of outstanding business rise substantially.

“Among the key obstacles that restricted output growth were lingering shortages of materials and suitable jobseekers.

“Firms also saw their expenses continue to soar as competition for labour pushed up salaries, while suppliers increased their list prices amid strong demand for scarce products. There were also widespread mentions of higher fees for shipping and airfreight.

“The overall rate of input cost inflation climbed to the second-highest in 13 years, a trend that was also seen for selling charges.”

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