The business activity in Saudi Arabia's non-oil private sector during August dropped to its lowest level in one-and-a-half years, said a report by Saudi British Bank (SABB) and HSBC.

The SABB HSBC in its monthly purchasing managers’ index (PMI) for August said the latest fall in the headline index was mainly due to deteriorations in all of its component indices (the suppliers’ delivery times index is inverted in the calculation of the PMI).

The PMI 2011 is a monthly report that reflects the economic performance of Saudi non-oil producing private sector companies and firms through the monitoring of a number of variables, including output, new orders, exports, input prices, output prices, quantity of purchases, stocks and employment.

Although the PMI continued to signal a strong improvement, Saudi non-oil private sector business conditions fell from 60 in July to 57.9 in August, its stated.

According to the report, the overall input and output price pressures moderated in August, to five- and six-month lows respectively. The slowdown in the former reflected weaker rises in both purchasing and staff costs.

'Activity levels increased at the slowest rate in the series history in August as new order growth moderated. The latest rise in new business was the least marked for almost a year.'

Nevertheless, the index remained at a level indicative of a marked rate of expansion, the report said.

The PMI panel members poined out that higher new order takings were the result of favourable market conditions, successful advertising and company expansions.

Backlogs continued to build during the latest survey period as workloads increased. However, the rate of accumulation remained only meagre and close to June’s recent low, they noted.

According to the report, further growth of new work led Saudi non-oil private sector firms to take on additional personnel and build up inventories in August.

'Both employment and input stocks rose solidly on the month, albeit at slower rates. Staffing increased at the weakest rate for 11 months, while input holdings accumulated at the slowest pace in the series history.'

Following a marginal deterioration in July, vendor performance improved slightly during August.
Respondents indicated that lead times shortened because of a high degree of competition amongst suppliers. However, the vast majority of monitored companies saw no change in average delivery times.

The purchase prices rose at the mildest pace for nine months, although the rate of increase remained above the series trend, the report pointed out.

The SABB HSBC said higher raw material prices, partly supported by demand, drove the latest round of inflation. However, improved business performance was the main reason for greater salaries and wages, it added.

Charges were further raised during August in order to protect profit margins from higher input costs. However, the rate of increase was slower than in July, the report added.-TradeArabia News Service