BUSINESS activities in the Nigerian private sector failed to improve and were broadly stagnant in August.
This is according to the latest Stanbic IBTC Bank’s latest Purchasing Managers’ Index (PMI) report released on Monday, August 2.
Although the PMI figure ticked up to 49.9 points in August from 49.2 points in July, still it remained at the contraction level for the second consecutive month.
In July, business activities recorded a headline PMI of 49.2, down from 50.1 in June and below the 50.0 no-change mark for the first time in eight months, The ICIR reported.
A PMI reading of above 50.0 signals expansion in business conditions while below 50.0 points to a contraction.
“Although new orders returned to growth, the rate of expansion was only modest and insufficient to result in a rise in business activity, which fell fractionally.
Employment continued to increase, however, as firms worked through outstanding business at a faster pace,” Stanbic IBTC stated.
It attributed the cause of failed business activities growth in the review month to rising input costs and surging inflation rate which propelled firms to increase their selling prices at a faster pace.
“Input costs rose rapidly again midway through the third quarter. The rate of purchase cost inflation hit a five-month high amid increases in prices for materials and transportation, with cost pressures exacerbated by currency weakness.
“Staff costs were also up as firms increased pay in response to higher living costs. Higher input costs were often passed on to customers, and output prices subsequently increased at the sharpest pace in five months,” it stated.
Stanbic IBTC, however, reported that there were some signs of encouragement as new orders returned to growth.
It said new business was up slightly, reversing a decline seen in July, and that the pace of expansion was much softer than the series average.
It also stated that new business rose across three of the four monitored sectors, the exception being services.
“Employment also increased, extending the current sequence of job creation to four months. Although modest, the latest rise in staffing levels was the fastest since last November.
Rising staffing levels and muted new order inflows meant that firms were able to deplete their backlogs of work at the joint-fastest pace since June 2022,” the report added.
Commenting, the head of Equity Research West Africa at Stanbic IBTC Bank, Muyiwa Oni, said, “The stagnation in overall operating conditions was in line with the trend in business activity; Nigerian companies posted a fractional reduction in business activity during August, as was the case in July.
“Although a renewed expansion of sales led some companies to increase their output, others reported that demand remained weak amid marked cost pressures.”
He said further that activity rose in the manufacturing wholesale and retail categories but fell in agriculture and services.
“On purchase prices, respondents noted higher costs for materials, most notably animal feed and paper, while logistics and transportation were also a source of inflation amid higher fuel prices.
“Some panelists noted the weakness in the USD/NGN pair. The rate of output price inflation also quickened to a five-month high in August as just under half of all respondents signalede a rise in charges. The increase in output prices reflected the pass-through of higher costs to customers,” Oni added.