September brought a further drop in business activity in the Welsh private sector after new orders slumped for the fourth consecutive month. New data for last month shows weak demand and low consumer spending due to the cost-of-living crisis, continuing to impact new sales among Welsh private firms.
The latest monthly Business Activity Index from NatWest - which measures the month-on-month change in the combined output of the manufacturing and service sectors - showed a fall in output from Wales’ private sector, registering 48.4 in September, down from 50.5 in August. Anything below 50 denotes contraction.
The index reported that the pace of this decline was the fastest since June, but broadly in line with the average seen across the º£½ÇÊÓƵ as a whole. Anecdotal evidence suggested the lower output was due to weak client demand and a faster reduction in new orders.
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Private sector businesses in Wales registered a fourth successive monthly decline in new orders during September. Low levels of new orders were linked to subdued client demand, with some firms reporting order postponements and deferrals. The Welsh manufacturing sector also recorded a renewed fall in new orders, while the service sector reported a sharp drop in customer demand.
Confidence among firms in Wales dropped to the lowest in almost a year and well below the º£½ÇÊÓƵ average. However, some were hopeful that new product launches and an uptick in client demand would support growth. Higher selling prices and business costs continue to weigh on projects for both output and client purchasing power.
The index reported a fall in workforce numbers for the second month in a row, this was the sharpest fall since January 2021 and faster than the º£½ÇÊÓƵ average. Only the north east of England and the east midlands recorded faster declines in workforce numbers. Welsh firms attributed the low workforce numbers to a reduction in new orders and the non-replacement of voluntary leavers.
The level of outstanding business fell at the end of the third quarter. The decline in backlogs of work eased slightly from August’s recent low, but was the second-fastest drop since May 2020. Of the 12 monitored º£½ÇÊÓƵ areas, Welsh firms registered the steepest fall in incomplete business amid lower new order inflows.
Average cost burdens increased at a further sharp pace last month, however the pace of inflation slowed to the weakest since October 2020. Welsh firms registered one of the slowest upticks in business expenses of the 12 monitored º£½ÇÊÓƵ areas.
While higher input costs were reportedly driven by greater wage bills and increased fuel prices, some companies reported that reduced material costs had dampened inflation.
Chair of NatWest Cymru Regional Board Jessica Shipman said: “Welsh firms signalled a return to contraction in output during September, as new orders fell at a faster pace. Weak demand and the ongoing impact of the cost-of-living crisis on customer spending patterns weighed on new sales. In turn, firms scaled back their hiring at the joint-quickest rate since January 2021, as business confidence slipped to an 11-month low.
"Subdued demand for inputs and greater competition for orders led to a welcome softening of inflationary pressures. Input costs and output charges rose at paces below their respective series average, as savings on material prices were passed through to customers in an effort to drive sales."
