oil private sector continued to expand at a marked pace, data from a survey by Markit Economics and the Saudi British Bank showed Monday. The Saudi British Bank (SABB) HSBC Saudi Arabia Purchasing Managers' Index (PMI), which measures the performance of the Kingdom's manufacturing and services sectors, came in at 59.6 in February, indicating a marked improvement in business conditions. The index reflects the economic performance of Saudi Arabian non-oil producing private sector companies and establishments through the monitoring of a number of variables, including output, new orders, exports, input prices, output prices, quantity of purchases, stocks and employment. Business conditions in the Kingdom non-oil private sector continued to improve in February, support by further marked expansions in new orders and activity, as well as accelerated growth of both employment and stocks of purchases. The latest reading was, however, slightly lower than 60 recorded in January. A PMI reading above 50 indicates expansion in the sector, while one below suggests decline. New orders received by Saudi firms increased at a sharp rate in January, mainly reflecting strong demand from the domestic market. Output in the non-oil private sector also expanded sharply during the month, reflecting the strong growth in new business. At the same time, firms increased their workforce at the fastest rate in the past eight months. Input price inflation accelerated to a near series record-high, as stronger demand resulted in increased costs pressures. Firms raised their output prices modestly, to compensate partially for the rise in total costs. However, the improvement in the health of the economy was accompanied by faster input price inflation as demand for inputs strengthened. Receipts of new work continued to grow in February, and at a marked rate, as respondents reported further improvements to market conditions. The latest data indicated that demand from domestic clients remained a key driver of sales. Nevertheless, new export orders rose at the strongest rate for seven months, with a number of panelists attributing the increase to targeted marketing strategies. New business growth encouraged Saudi Arabian non-oil private sector companies to increases their output in February. The rate of expansion was sharp and only slightly slower than January's seven-month high. Backlogs of work were accumulated over the month, however, as the rate of new order growth exceeded that of activity. To keep up with rising new order levels, the Kingdom's non-oil private sector companies increased purchasing, built up stocks and took on additional staff in February. The rate of job creation was solid and quickened to an eight-survey period high, as many panelists also noted the impact of Saudization policies. With buying activity increasing at its fastest pace for just over a year, stocks of purchases were accumulated at the strongest rate for seven-months. Stronger demand did have implications for cost pressures, however, as overall input price inflation accelerated to a near series record-high. Data showed that escalating purchasing costs remained the principal force behind the rise in input prices, with panelists noting higher costs from fuel to food stuffs. In contrast, salary inflation slowed to a four month-low, signaling only a modest increase in wage costs. To compensate partially for the rise in total costs, output prices were increased modestly over the survey period. Despite growing demands, vendor performance continued to improve in February. The latest shortening in lead times was the sharpest for just over two years, with panelists citing greater competition and spare capacity as the key causes.
