Businesses record drop in new orders

Businesses have recorded a drop in new orders for the second time since June. Photo | Edgar R Batte 

What you need to know:

For the first time in a year the survey returned a score below the 50 mark under which, is an indication of a decline in economic activities 

Private sector activities declined further in July due to rising inflationary pressures, which have dampened demand leading to reductions in new orders and output during the month, according to the Stanbic Purchase Managers’ Index. 

The monthly survey, which is conducted among business chief executives and procurement managers, noted that during July, companies reported that they had scaled back on employment and purchasing activity, citing higher costs, resulting from an increase in a range of inputs such as fuel and transportation.

For the first time in a year, the survey returned a score below the 50 mark under which, is an indication of a decline in economic activities. 

During July, the survey indicates, the index fell to 48.2 from 50.9 in June due to inflationary pressures characterised by a further increase in overall input costs, driven by higher fuel and transportation costs, plus rising prices for utilities and a range of raw materials. 

“In response to higher cost burdens, firms continued to increase their selling prices,” Stanbic noted. 

As a result, during the period, staff costs decreased at the start of the third quarter, reflecting a reduction in employment as firms responded to lower new orders while purchasing activity was also scaled back, ending a nine-month sequence of expansion. 

It is the second time employment levels have fallen in over a year after recovering from the impact of Covid-19 at the close of last year. 

Stocks to purchases continued to rise but because of a drop in activity, companies held excess inventories.

Mr Ronald Muyanja, the Stanbic head of trading, said because of higher costs   new orders decreased for the first time since July 2021, with companies reporting price increases and a lack of money in the economy. 

“Employment decreased for the second month running during July. While some firms took on extra staff to help keep up with workloads, this was outweighed by companies that reduced workforce due to falling new orders. Sector data suggested that the overall reduction in employment was centered on construction firms,” he said.  

In its monetary policy report, Bank of Uganda said last month that growth in economic activity was softening as signaled by the quarterly growth of the Composite Index of Economic Activity, which slowed to 0.8 percent in the quarter to April down from the 2.4 percent recorded in the quarter to January 2022.  

The slowdown, the report said, was more pronounced in the industry and services sectors as businesses become less optimistic while consumers expressed pessimism due to higher than normal price pressures.  

The Central Bank also warned that further increases in commodity prices could lead to persistently high inflation, which has dampened the economic recovery momentum seen at the beginning of the year.

New orders        

The Stanbic PMI survey further indicated that new orders decreased for the first time since July 2021, but decreases were more pronounced in the construction and services sectors, but increased activity was reported in agriculture, industry and wholesale & retail.

During the survey period, suppliers’ delivery times lengthened for the first time in a year, due to scarcity of fuel and materials plus higher transport costs.