Kenya's private sector performance slid back into negative at the end of the third quarter as new orders sharply shrank after a brief respite in August.

According to the latest monthly Purchasing Managers’ Index (PMI) by Stanbic Bank, rising inflation and high fuel bills dampened sales, whilst also leading to the second-fastest rise in input costs in the survey's near-decade history.

In total, 42 per cent of surveyed businesses reported a monthly rise in costs, against one per cent that saw a decrease.

Higher input prices were generally related to a further deterioration in the exchange rate against the US dollar, which often resulted in increased purchase prices.

According to the report, around four per cent of companies reduced their head employees due lower new business levels.

However, a similar proportion noted a rise. Four of the five monitored sectors saw a decline in employment, the exception being agriculture.

This saw businesses respond by reducing their output levels solidly during September and making cuts to both employment and inventories for the first time in seven months.

"Kenyan companies registered a slight drop in employment levels in September, as the respective seasonally adjusted index dipped below the 50 points no-change mark for the first time since February,'' PMI report reads. 

As firms cut on employment, the rate of staff cost inflation moderated further in September, easing to the lowest for six months and one that was only marginal.

While some firms raised salaries due to the higher cost of living, others reported cuts linked to falling sales.

Consequently, adjusted for seasonal variation, the backlogs of work index posted just below the 50 neutral mark in September, indicating a fractional reduction in outstanding work levels at Kenyan companies.

This marked the first monthly decline since February.

Selling charges were meanwhile raised sharply, as firms looked to pass costs through to customers.

According to the report, the seasonally adjusted Purchase Prices Index increased slightly in September to register its fourth-highest reading since the survey began in January 2014.

Companies often commented on the impact of a weaker shilling compared to the US dollar, especially on import prices. Higher fuel bills and taxes were also often cited.

Yesterday, the shilling opened the day at a new history low of Sh148.50 against the US dollar, having depreciated close to 22 per cent in just 12 months. 

Driven by the renewed fall in new orders, Kenyan firms scaled back purchasing activity at the end of the third quarter.

This followed the first uplift for five months in August. The latest downturn was only moderate, however, and softer than the concurrent decline in new orders.

Rising input prices presented cash flow and inventory challenges to some suppliers in September, according to survey panelists, leading to deterioration in performance for the first time in six months.

On the flip side, firms noted that reduced demand and strong input availability had helped other vendors speed up deliveries. As a result, the overall lengthening of lead times on the month was only marginal.

Inventories of inputs held by Kenyan companies were broadly stagnant in September, dropping fractionally from the previous month and for the first time since February.

The reduction was largely due to lower client demand, according to respondents. Manufacturing wholesale and retail led to a decline in stocks, contrasting with solid expansions in agriculture and construction.

After signaling an upturn in operating conditions for the first time in seven months in August, the headline Kenya PMI returned to contraction territory in September.

The index dropped from 50.6 to 47.8, indicating a moderate deterioration in the private sector economy.

Christopher Legilisho, economist at Standard Bank said the poor PMI in September implies slower economic growth momentum after the positive performance in August.

There was a notable contraction in output and new orders by the private sector in September, a scaling back of purchasing activity, and a slight drop in employment levels across all sectors other than agriculture.