Business conditions in Kenya’s private sector showed signs of recovery in August, with the latest Stanbic Purchasing Managers’ Index (PMI) by Stanbic Bank rising to 49.4, up from a 12-month low of 46.8 in July. While the index remains below the neutral 50.0 mark, signaling a fourth consecutive month of contraction, the latest reading points to a much softer decline in operating conditions midway through the third quarter.
Softer declines in output and new orders
Survey data showed that new orders and output continued to fall in August, though at slower rates compared to July. Businesses cited weak client purchasing power amid economic headwinds. However, several firms reported improving demand and a rebound following earlier protest-related disruption. Output declines were particularly evident in agriculture, construction, and services, but were partially offset by growth in manufacturing and wholesale & retail.
Employment and inventories edge higher
Private sector employers continued to expand their workforces, marking a seventh straight month of job creation. The rate of hiring was the fastest in 15 months, though still below the long-run trend. Higher workforce capacity, alongside renewed stock-building, supported firms in reducing backlogs of work for the third month running. Inventories also rose slightly, reversing the decline seen in July, as some businesses restarted procurement in anticipation of recovering demand.
Input costs rise, but inflationary pressures ease
Firms faced another increase in input costs during August, driven by higher wages and taxes on key items such as fuel. However, the overall pace of cost inflation slowed for the first time in five months. Purchase price inflation eased, particularly in agriculture, while wholesale and retail firms reported steeper rises. Wage costs rose at the fastest rate since late 2019, reflecting salary adjustments for cost-of-living pressures. To stimulate demand, companies raised selling prices only marginally, with output charge inflation at a 12-month low.
Business confidence at 30-month high
Encouragingly, business optimism strengthened, reaching its highest level since February 2023. Firms expressed confidence that new marketing strategies, product diversification, and branch expansions would support stronger sales in the year ahead. Manufacturing companies were the most upbeat among the five monitored sectors.
