Business activity growth eases as new business gains stall - Natwest
Data from the NatWest Regional PMI� for the West Midlands has revealed output growth across the region 's private sector in December 2021, with the rate of increase slowing to the weakest
The headline 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 - slipped from 54.3 in November to 50.7, to signal only a marginal rate of expansion.
Monitored companies indicated that growth was curtailed by rising Covid-19 cases and its knock-on effect on consumer confidence. Material and staff shortages were also cited as factors curbing output.
December data pointed to stagnant new orders at private sector companies in the West Midlands, ending a nine-month sequence of expansion. Monitored firms indicated that sales were constrained by Covid-19 related uncertainty, fears over the spread of the Omicron variant and reduced client numbers.
The local trend was in stark contrast to that seen at the UK level, where new business rose solidly despite a notable slowdown in growth.
West Midlands firms continued to report rising operating expenses in December, with higher freight, raw material and wage costs mentioned in particular. Increases were often attributed to shortages and the shipping crisis.
The overall rate of inflation eased from November's peak, but was nonetheless the third-highest since the series started in January 1997. As has been the case since August 2020, inflation was more pronounced in the West Midlands than at the national level.
Ongoing increases in input costs continued to encourage private sector companies in the West Midlands to hike their selling prices. The overall rate of charge inflation was sharp and quickened to the strongest in the history of the series (since November 1999). The West Midlands was placed fifth in the regional rankings for output prices.
Private sector employment in the West Midlands continued to increase in December. Those companies that reported higher payroll numbers commented on the replacement of previous leavers and predictions of better demand conditions in the coming months. Despite being marked, the overall pace of expansion eased to the weakest since March. Local job creation lagged behind the national average for the second month in a row.
Backlogs of work among West Midlands companies rose further at the end of the year. However, the pace of accumulation was fractional and the slowest in the current ten-month sequence of expansion. Where an increase was reported, panellists mentioned difficulties hiring suitable staff and problems sourcing raw materials. At the same time, efficiency gains and subdued sales at other firms enabled them to clear work-in-hand.
Private sector companies in the West Midlands were strongly upbeat that output would expand during 2022, with the Future Activity Index climbing to a seven-month high in December. Optimism was pinned on hopes that the pandemic and associated restrictions would recede. Marketing efforts and innovation were also among the reasons cited for positive sentiment.
John Maude (pictured), NatWest Midlands and East Regional Board, said: "Growth in the West Midlands took a step back at the end of 2021, as the fast spread of the Omicron variant caused heightened uncertainty among customers who postponed purchases. Companies were also negatively impacted by shortages of staff and materials.
"While local output rose in December, overall sales were stagnant. However, firms expect the slowdown to be short-lived as seen by an improvement in business confidence towards the year-ahead outlook for output and sustained hiring. Of concern, however, a further substantial increase in expenses underpinned an unprecedented upturn in prices charged for local goods and services."