Bank of Scotland

Private sector activity declines for first time in six months

12 October 2015

Private sector activity in Scotland declined for the first time in six months during September, albeit at a slow pace. The contraction was broad-based, as both the service and manufacturing sectors registered decreases in output.

Volumes of new business fell at a marginal pace in September, while backlogs of work also declined. Despite this, workforce numbers expanded at an accelerated rate.

At 49.0, down from 50.8 in August, the seasonally adjusted headline Bank of Scotland PMI - a single-figure measure of the month-on-month change in combined manufacturing and services output - pointed to a decrease in private sector business activity in Scotland in September. That followed a five-month sequence of increasing output at Scottish private sector companies.

Manufacturing firms in Scotland reported a fall in new orders, from both the domestic and foreign markets, in September. The rate at which new business contracted was sharp and led to a deterioration in production in the sector. Anecdotal evidence suggested declining output was the result of lower demand.

Data collected from Scottish service sector companies also highlighted a contraction in activity during the month. This was despite a rise in incoming new business, which increased at the least marked rate in seven months. 

Latest survey data signalled a modest expansion in headcount numbers at Scottish private sector firms. Growth was led by the service sector, while manufacturing companies registered a more modest rise in employment.

Volumes of outstanding business at Scottish private sector firms fell for the ninth successive month in September. Manufacturing businesses that reported falling work-in-hand reflected on a combination of lower orders and higher staffing levels.

Cost burdens increased in September, with the rate of inflation accelerating from August. While service sector companies reported higher input costs, manufacturing firms faced sharp reductions in prices, softening the overall rise in input prices.

Meanwhile, output prices fell again during the month. Moreover, the rate of decrease quickened from the previous survey period. Price discounting was linked to increased competition in the market.

Donald MacRae, Chief Economist at Bank of Scotland, said, “September’s PMI showed a broad-based decline in economic activity across both service and manufacturing sectors.   New export orders fell for the eighth month in a row. The slowdown in the Scottish economy identified in summer has taken further hold in the month of September but employment intentions suggest a return to moderate growth in coming months.”

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