Photo used for illustrative purpose.

The latest data from the S&P Global Purchasing Managers' Index (PMI) study indicated that the labour market in the non-oil private sector economy in the UAE flourished in March, as the pace of new order growth and pressures on absorptive capacities accelerated in employment increase since July 2016.

New business growth was the fastest since October last year, encouraging companies to build input inventories at the strongest rate in exactly five years.

Businesses also continued to benefit from relatively mild cost pressures, although margins contracted again as product prices fell.

The main purchasing managers' index for the UAE increased from 54.3 points in February to 55.9 points in March, indicating a sharp and accelerating improvement in the conditions of the sector.

It is worth noting that the index's increase by 1.6 points was the largest monthly increase since October 2021, as all five sub-components provide a positive impact on the index's direction.

A standout of the sub-indices was the Employment Index, which rose to its highest reading since July 2016 and signalled a solid boost to workforces. The jump in employment levels reflected the recent trend of improving demand conditions, with some companies noting that rising new order intakes  led to a need for greater labour capacity.

Among the most prominent sub-indicators was the Employment Index, which rose to its highest reading since July 2016 and indicated a strong increase in the size of the labour force.

The significant increase in employment levels was a reflection of the improvement in demand conditions, as some companies indicated that the increase in new purchase orders led to the need for more workers.

At the same time, the growth rate of new orders rose to a five-month high in March as companies highlighted an increase in market demand and increased tourism.

The rebound remained mostly driven by domestic sales, while overall export business was broadly flat in March after a three-month streak of decline. The rise in new orders caused firms to increase their output, and the rate of expansion was broadly unchanged since February and was generally strong.

However, with demand improving and some companies reporting delays in hiring staff, backlogs have risen to the greatest extent since October last year. At the same time, non-oil producing companies indicated that they had increased inventories. With purchases of inputs increasing sharply in recent months, March data indicated the fastest expansion in holdings of raw materials and semi-finished materials in exactly five years.

Reports indicated that efforts to replenish inventory and maintain inventory for new projects were behind the increase. However, the recent surge in buying activity was much weaker than in February, and businesses also saw a slower improvement in delivery times.

Rising wages: Increased inventory levels partly reflect efforts to take advantage of moderate cost conditions. Indeed, data for March indicated that while total input prices rose for the second month in a row in line with higher wages and some increases in supplier prices, the rate of inflation was generally modest. As a result, there was a marginal decline in selling prices as companies sought to attract new customers. Finally, expectations about future activity in the non-oil economy improved to a five-month high in March and were consistent with average expectations recorded since the start of the COVID-19 pandemic. Firms generally looked for continued market growth to provide increased opportunities over the next two years. the next ten months.

Increased carrying capacity:

David Owen, chief economist at S&P Global Research, said: “The latest reading of the Purchasing Managers' Index (55.9 points) in March reflected the concerted efforts by non-oil producing companies to increase their absorptive capacity in the face of increased demand rates. The sub-indices of employment and stocks of purchases rose to their highest levels in 80 and 60 months, respectively, indicating a significant increase in the number of employees and the volume of stocks in the latest study period.

He continued, “Behind the expansion is a strong increase in new purchase orders, with the growth rate accelerating to a five-month high, although remaining below the post-Covid peak recorded in late 2021.

Likewise, production levels expanded at the fastest rate in five months.” months, while expectations of future activity rose to the highest level since last October. Firms continue to benefit from relatively mild inflationary pressures, although improved market conditions and increased demand for employees have led to faster wage increases.

This has allowed companies to reduce production prices further in the face of strong competition in the market, as a number of committee members mentioned offering additional discounts to customers.”