PMI data for May signal a further improvement in business conditions across the Saudi Arabian nonoil private sector. Output and new business continued to grow sharply, while job creation accelerated to the fastest rate for a year-and-a-half. However, overall input cost inflation picked up to an unprecedented rate.
The Index registered 62.6 in May, almost unmoved from April's reading of 62.7, signaling a strong improvement in non-oil private sector operating conditions.
Total new orders taken by the Kingdom's nonoil private sector firms continued to increase during the latest survey period, which panelists linked to better economic conditions, advertising campaigns, company expansions and good reputations. Despite slowing on the month, growth remained above the series trend. Meanwhile, new export work rose at an accelerated rate due to an improvement in foreign demand, particularly from GCC countries. By company size, large firms recorded the most pronounced rises in both total new orders and new export orders.
To accommodate higher inflows of new business, companies raised output, buying activity, input stocks and employment again in May. These measures were not, however, sufficient to allow firms to catch up on unfinished work. Consequently, backlogs continued to accumulate on the month.
Despite stronger demand for inputs, average vendor performance improved further in May. Saudi Arabian nonoil private sector companies noted faster deliveries, as they have done in each month since the survey began in August 2009. Panel members linked shorter lead times to good relationships with suppliers, efficient service, prompt payments for inputs and strong competition amongst vendors.
Charges rose again in May, and at a near-survey record pace. Anecdotal evidence suggests that tariffs were increased principally to pass through input cost inflation to customers.
Total input costs rose at an unprecedented rate in May, with the acceleration reflecting a sharper rise in staff cost inflation. Salaries and wages increased as firms both rewarded employees for good company performance and compensated them for rising living costs. Nonetheless, purchasing costs remained the greatest upward influence on overall input prices. Prices paid for input purchases rose at a near-series record pace on the month, driven by greater fuel and raw material costs, as well as unfavorable exchange rates. Small firms posted the sharpest increase in overall input prices.
