November 2010

• Output, new business and employment growth accelerated
• Expansion in new export orders slowed
• Purchase price inflation fastest in survey history

SABB has announced the results of its “SABB-HSBC Purchase Managers’ Index for October 2010. The monthly composite index provides a single-figure snapshot of the performance of the non-oil producing private sector in real time by monitoring and analyzing a number of variables mainly outputs, new orders, export, backlogs of work, suppliers’ delivery times, employment, output prices, overall input prices, purchasing prices, quantity and stocks of purchases.

Strengthening domestic demand led to an improvement in overall business conditions in the Saudi Arabian non-oil producing private sector during October. Although growth of new export work slowed since September, the expansion in total new orders accelerated, leading companies to increase both activity and employment levels. However, price pressures built up alongside demand, with both total input and output price inflation accelerating on the month.

Rising to 59.9 in October, from 58.4 in September, the seasonally adjusted headline SABB HSBC Saudi Arabia Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of the performance of the non-oil producing private sector – signalled a sharp gain in the health of the economy. Moreover, the rate of improvement was faster than the series trend.

Total new order receipts at KSA private sector companies rose substantially in October and at the fastest rate since July. This was despite growth of new export business easing to a series record low. Panellists cited favourable economic conditions, greater demand and successful promotional activities as the key factors driving overall new order levels higher.

Greater volumes of new work led KSA private sector firms to raise output, employment and purchasing more sharply in October. Activity increased at a considerable pace, while job creation was solid. Growth in both variables was the fastest since June. Meanwhile, buying activity expanded substantially.

The latest increase in input acquisitions was sufficient to further build up stocks of purchases at the start of Q4. However, the rate of accumulation moderated to a survey record low.

Despite stronger demand for inputs in October, average vendor performance continued to improve. Moreover, lead times shortened to a greater extent than over the previous five months. Saudi Arabian private sector companies stated that competition amongst suppliers was the main reason for the improvement.

The volume of unfinished business at KSA private sector firms grew in October, bringing the current run of accumulation to ten months. The rate of increase was solid and the most marked since July. Panellists attributed the rise to heavier workloads.

Total input price inflation accelerated to a solid rate in October. Data showed that faster rises in both purchasing and wage costs supported the latest increase. Prices paid for raw materials and semi-finished goods climbed sharply and at a series record rate. Higher commodity costs and unfavourable exchange rate fluctuations were the key contributors to purchasing price inflation, according to respondents. Meanwhile, salaries rose moderately, which panel members linked to higher production and solid business conditions.

Private sector firms in Saudi Arabia passed on part of their greater cost burdens to customers in October through higher charges. Output price inflation picked up to a solid rate as a result.