Bank of Scotland

Jobs growth fastest in PMI survey history

10 March 2014

February’s Bank of Scotland PMI report showed the continuation of strong growth of private sector activity north of the border. Moreover, improving business conditions led Scottish companies to raise employment to the greatest extent since the survey began in January 1998. In line with increased demand, and also an upshot of stronger cost pressures faced by businesses, output price inflation climbed to the fastest for more than two-and-a-half years.

The seasonally adjusted headline Bank of Scotland PMI registered 56.2 in February, signalling a marked increase in the combined output of Scotland’s manufacturing and service sectors. The index was down slightly from January’s reading of 57.2, reflective of slower growth in goods production compared with the opening month of the year. The latest expansion in service sector business activity, on the other hand, was the most marked in four months.

Underlying growth in private sector business activity was another strong rise in the level of new work, which panel member reports linked in part to increased confidence and a gathering of momentum in the housing sector. Manufacturers meanwhile recorded a decrease in new export orders for the third time in the past four months, reversing January’s marginal gain.

Employment rose at the fastest rate in the survey’s history during February, with job creation recorded at both manufacturers and services firms. The latter provided the principal boost, amid mention of staff being added in order to keep atop of current workloads and in preparation for future growth in activity.

February’s survey indicated a ninth straight monthly increase in backlogs of work at Scottish firms. The pace of accumulation picked up since January, but nonetheless was only modest.

Input prices rose at a sharp and slightly accelerated rate in February, which contrasted with a reduction in cost inflation across the UK as a whole. Labour costs were identified by panellists as a key source of inflationary pressure.

Strong demand meanwhile encouraged Scottish firms to raise their prices charged to the greatest degree since July 2011. Average output prices rose solidly, with data showing increases in both factory gate prices and service sector tariffs.

Donald MacRae, Chief Economist at Bank of Scotland, said: “February’s PMI showed the private sector of the Scottish economy continuing to demonstrate strong growth. The rise in employment was the steepest in 16 years of the survey while the improvement in new work was particularly strong among service businesses.   The PMI for the last five months suggests the Scottish economy entered spring of 2014 with sufficient growth momentum to have regained the peak level of output last achieved in mid 2008 before the recession.

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