February 2012

SABB PMI in February Purchases rise to 13-month high Non-oil private firms raise wages Export Orders quickest since July 2011

The Saudi British Bank “SABB” has published the results of the headline SABB HSBC Saudi Arabia Purchasing Managers’ Index™ (PMI™) for February 2012, a monthly report issued by the bank and HSBC. It reflects the economic performance of Saudi Arabian non-oil producing private sector companies and establishments through the monitoring of a number of variables, including output, new orders, exports, input prices, output prices, quantity of purchases, stocks and employment.

Business conditions in the KSA non-oil private sector continued to improve in February, support by further marked expansions in new orders and activity, as well as accelerated growth of both employment and stocks of purchases. As a result, the headline PMI registered 59.6 in February, marginally below January’s reading of 60.0. However, the improvement in the health of the economy was accompanied by faster input price inflation as demand for inputs strengthened.

Receipts of new work continued to grow in February, and at a marked rate, as respondents reported further improvements to market conditions. The latest data indicated that demand from domestic clients remained a key driver of sales. Nevertheless, new export orders rose at the strongest rate for seven months, with a number of panellists attributing the increase to targeted marketing strategies.

New business growth encouraged Saudi Arabian non-oil private sector companies to increases their output in February. The rate of expansion was sharp and only slightly slower than January’s seven-month high. Backlogs of work were accumulated over the month, however, as the rate of new order growth exceeded that of activity.

To keep up with rising new order levels, KSA non-oil private sector companies increased purchasing, built up stocks and took on additional staff in February. The rate of job creation was solid and quickened to an eight-survey period high, as many panellists also noted the impact of Saudization policies. With buying activity increasing at its fastest pace for just over a year, stocks of purchases were accumulated at the strongest rate for seven-months.

Stronger demand did have implications for cost pressures, however, as overall input price inflation accelerated to a near series record-high. Data showed that escalating purchasing costs remained the principal force behind the rise in input prices, with panellists noting higher costs from fuel to food stuffs. In contrast, salary inflation slowed to a four month-low, signalling only a modest increase in wage costs. To compensate partially for the rise in total costs, output prices were increased modestly over the survey period

Despite growing demands, vendor performance continued to improve in February. The latest shortening in lead times was the sharpest for just over two years, with panellists citing greater competition and spare capacity as the key causes.