The West Midlands economy is at its weakest position in more than a decade as new orders plummet, the Royal Bank of Scotland says.
The Purchasing Managers Index produced by the bank found the regional economy was slipping further into a downturn, as December data pointed to a further worsening of economic conditions to come.
Output and employment fell sharply among the region’s firms while there was a series record decline in new business. Input prices decreased for the second month in a row while output charge deflation was recorded for the first time since April 2002.
Business activity in the West Midlands contracted substantially in December, driven by steep falls in new orders as purchasers looked to cut back in the face of tricky trading conditions. The seasonally-adjusted Business Activity Index was recorded at 33.2, the second-fastest decline since data were collected in January 1997.
New business volumes decreased for the fourteenth month in succession, and at a series record pace. The latest reduction was largely attributed to a lack of demand as some clients delayed purchases.
Falling new business levels meant that companies were able to use spare resources to complete backlogs of work.
Outstanding business fell at the fastest pace since data were collected in November 1999.
Firms responded to weaker demand by cutting workforces. Employment has declined for eight months in a row. The rate of job-shedding was second only to November’s series record.
About one-third of respondents indicated that they reduced staffing levels during the month, against seven per cent that noted an increase.
Output charges fell at the sharpest pace since February 2002, partly as a result of lower raw materials costs. There were some reports that firms had passed on cuts in VAT to clients while increased competition for scarce business also led to lower prices.
Falling prices were more common in the service sector.
Input costs declined at the fastest pace since 1999. This was the second consecutive monthly fall. Cost deflation was largely attributed to reduced fuel costs. Input prices fell in the manufacturing sector but services firms continued to report higher costs.
RBS economist Julien Seetharamdoo said: “Output in the West Midlands fell at the joint-fastest pace of all the UK regions in December. Order books shrunk at the fastest pace since the series began 12 years ago. Firms responded by cutting workforces for the eighth month in a row.
“Weaker activity has also led to falling input costs and output charges. The survey suggests that the West Midlands economy enters 2009 in its weakest position in over a decade.”
December’s PMI business survey was produced for RBS by Markit Economics.