Time flies with great content! Renew in to keep enjoying all our premium content.
Prime
Tough times: Firms make first job cuts in 15 months
The employment decline came as overall business conditions deteriorated further, with the headline PMI remaining below the 50-point growth threshold for a third consecutive month, reflecting a continued contraction in private sector activity.
Businesses in Kenya shed jobs in May for the first time in 15 months as weakening customer demand and rising operating costs forced firms to lay off workers, signalling fresh strains within the private sector.
Stanbic Bank Kenya’s monthly purchasing managers' index (PMI) for the private sector shows that companies scaled back staffing after a prolonged hiring streak, a shift in labour market trends that had remained resilient through much of the past year.
The slowdown points to growing caution among employers as sales weaken, while operating expenses rise sharply, raising concerns that businesses may increasingly prioritise cost controls over workforce expansion in the coming months.
“Private sector businesses in Kenya signalled a renewed decline in staff numbers during May, ending 15 months of continuous job creation. Panelists reported that the fall often reflected reductions in temporary contract staff,” the survey noted.
The employment decline came as overall business conditions deteriorated further, with the headline PMI remaining below the 50-point growth threshold for a third consecutive month, reflecting a continued contraction in private sector activity.
The index stood at 46.6 in May, having dipped from the 49.4 recorded in April. New orders placed with firms in Kenya fell for the third month running, and at the sharpest pace since July last year as firms confronted softer customer demand amid tighter household budgets.
Output levels also declined for a third straight month, highlighting the extent to which weaker demand is filtering through to actual production and service delivery across large sections of the economy.
The latest findings suggest businesses are increasingly facing a difficult combination of slower sales growth and rising expenses, a dynamic that typically weighs on hiring decisions and investment plans.
Many firms reported that higher costs continued to erode purchasing power among consumers, reducing spending on goods and services and contributing to a more cautious business environment.
Overall business costs accelerated for a third consecutive month and reached their highest level in two-and-a-half years, intensifying pressure on company profit margins.
The survey showed purchase price inflation rose to its highest level since November 2023, with businesses citing increases in food, fuel and transportation costs among the key drivers of inflation.
“Consumer resistance to spend, alongside rising costs, contributed to contractions in new orders and output. These declines may stem from the week-long disruption to business activity because of nationwide protests by transportation sector players that constrained movement,” said Christopher Legilisho, economist at Standard Bank.
“Inflationary pressures have intensified, constraining demand conditions, with input prices, purchase costs and output prices driven up by higher fuel and transportation costs.”
Kenya’s annual inflation rate rose sharply to 6.7 percent in May, up from 5.6 percent in April.
This marked the highest inflation level recorded since January 2024, mainly driven by surging transportation costs, increased food prices, and higher utility and fuel expenses. Respondents also linked part of the cost pressure to the ongoing conflict in the Middle East, which has heightened concerns about global energy markets and international supply chains.
The cost increases were broad-based, affecting all major sectors covered by the survey, with construction firms recording the strongest inflationary pressures followed by wholesale and retail businesses.
Despite rising operating expenses, wage costs remained largely stable, indicating many firms chose to limit salary adjustments even as broader inflationary pressures intensified.
The survey showed that 99 percent of participating businesses reported no change in staff costs during May, underscoring employer caution amid deteriorating trading conditions.
The slowdown in demand has also created spare operating capacity across parts of the private sector economy, with firms reporting a further reduction in outstanding workloads during the month.
Falling backlogs often signal that companies are processing existing work faster than they are receiving new orders, a trend that could eventually translate into slower recruitment or further workforce reductions.
Even with the difficult operating environment, businesses remained optimistic about the future, with confidence levels rising to their highest point since February 2023.
Companies expressed expectations of stronger activity over the coming year, supported by planned investments in advertising, market expansion, product diversification and digital sales channels.
