Saudi job creation weak in June but new orders, output soar

Emirates NBD Saudi Arabia PMI says employment growth remains deflated despite improvement in business conditions

The upturn in Saudi Arabia’s non-oil private sector was maintained at a steady rate in June, with a solid improvement in business conditions, according to a new report.

Output and new orders both rose sharply, leading firms to raise their input buying at a marked pace, said data from the Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI).

However, the respective rates of expansion remained subdued in the context of historical data as weak job creation continued to undermine overall growth, as did falling exports, the PMI showed.

On the price front, input costs rose to the greatest extent in seven months, contributing in turn to a first increase in charges since October last year.

Adjusted for seasonal influences, the headline PMI posted 54.4 in June, down slightly from 54.8 in May. The latest reading rounded off a second quarter which has seen moderate growth (54.5) in line with the average recorded in 2016 to date (54.4). However, the improvement in business conditions remained subdued when compared to the long-run series trend (58.6).   

Khatija Haque, head of MENA Research at Emirates NBD, said: “The non-oil sector in Saudi Arabia is expanding at a robust rate, despite low oil prices, government spending cuts and more recently, higher interbank lending rates.

"Firms appear to be increasing operating efficiency, as jobs growth remains sluggish even as activity and new orders are rising.” 

Both output and new orders continued to rise sharply in June. However, while output growth eased to a 32-month low, the rate of expansion in new work was little-changed from May’s five-month high. Underpinning new business gains were stronger marketing efforts. Some firms also pointed to the quality of their goods and services as a factor behind healthy demand.

Despite the expansion of total new work, exports remained an area of concern midway through 2016, according to the survey. New business from abroad fell for the third successive month, having previously risen back-to-back since the survey began in August 2009. 

The PMI showed that purchasing activity rose further in June, reflective of ongoing growth of the sector as a whole. The rate of expansion was marked and broadly in line with that seen for output and new work.

Meanwhile, the pace of job creation remained subdued in June. Continuing a trend seen throughout the second quarter, the latest rise was among the weakest recorded by the survey. Companies were nevertheless able to reduce backlogs for the first time in nearly three-and-a-half years. Some respondents indicated that they had become more efficient in production.

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