Greater spending on marketing and advertising to reach new customers during June, alongside hopes of stronger demand, underpinned the optimism amongst several private sector firms to keep the monthly Stanbic Purchasing Managers Index (PMI) above the threshold 50.0.
The latest Stanbic PMI dipped to 55.6 in June compared to the 56.4 reading for May. However the June figure still marks the fifth month of continuously improving business conditions.
When foreign business people are sizing up opportunities in Uganda or a local counterpart wants a snapshot of economic trends, one of the first indicators they will look for, is the monthly PMI.
Readings above 50.0 mean things are relatively good for the private sector, but below that figure signifies contraction and some pessimism. During June, output and new orders continued to expand, supporting growth in employment, purchasing and stocks.
Christopher Legilisho, Economist at Stanbic Bank said, “The Stanbic Uganda PMI signaled an overall expansion for a fifth straight month in June due to robust economic conditions in the private sector, with both output and new order growth still healthy. Employment also expanded in June due to positive business growth foreseen over the coming months.”
The Stanbic PMI is compiled by S&P Global from responses to questionnaires sent to about 400 purchasing managers. The sectors covered by the monthly survey include agriculture, mining, manufacturing, construction, wholesale, retail, and services.
The index is a weighted average of the following five indices: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stocks of Purchases (10%).
The monthly PMI is crucial for business leaders because it provides a timely and insightful indicator of economic health, helping them anticipate trends, make informed decisions, and adapt their strategies accordingly.
According to the June data, new sales intakes were often attributed to new client wins and more favorable demand conditions. In line with the trend for output, all five monitored sectors recorded a rise in new business.
Once again for the fifth month running, Ugandan businesses recorded a rise in employment at the end of the second quarter. Companies reportedly hired additional temporary or permanent staff to support greater increased demand. As has been the case since March, job creation was seen across all five sectors and all recorded a rise in wage bills.
Purchasing activity was up again as has been the case in each month for just over two-and-a-half years. Panelists stated that input buying had been adjusted up in response to the new orders.
However, suppliers’ delivery times shortened for the first time in three months during June. Ugandan companies reported that where lead times for inputs improved, this was due to a fall in transportation issues. At the sector level, where comparable data is available, only manufacturing firms registered a decline in vendor performance.
Overall input costs continued to increase with respondents saying that shortages of some materials, as well as higher utility and fuel costs drove inflation. Rising operating expenses were seen in most sectors, except for construction where firms recorded a decrease in overall input prices.
Extending the current sequence of inflation that began in August 2021, Ugandan companies signaled another rise in purchase costs during June. Higher prices for items including fuel, cement, fruit, packing materials and metal parts were mentioned by survey respondents.
Although some firms sought to pass-through higher costs to customers, others mentioned discounting in an effort to boost new sales. Of the five monitored sectors, only agriculture and wholesale & retail saw a rise in output prices.
Legilisho said, “Further, input prices, purchase costs and staffing costs rose again, but output charges were broadly unchanged on the month. Encouragingly, the long-term trends imply subdued inflation because of appropriate monetary conditions, an appreciating shilling, and deflation in energy prices.”
