By Max Clarke

Operating conditions in Scotland’s private sector economy deteriorated in November, as activity, new order levels and employment all fell. The overall decline in output was signalled by the Bank of Scotland PMI — a seasonally adjusted index monitoring activity across Scotland’s manufacturing and service sectors — posting 49.5.

Although down from 49.9 in October, the index continued to highlight only a fractional reduction in output. Overall weakness was again focused on the service sector, as goods producers posted a stronger performance in terms of both output and new business flows over the month.

Scottish firms recorded a third straight monthly decline in activity at their business units during November, although the pace of contraction was only modest. Where lower output was recorded, this was often linked to falling order levels.

In turn, survey respondents indicated that subdued demand and adverse weather conditions had led to a modest drop in the volume of incoming new business received in November. This extended the current period of decline to two months. Weakness was again focused on the service sector.

However, Scottish manufacturing firms recorded a solid rise in production during November that was the strongest since August. This sector also saw the first monthly rise in three months in new order levels. The volume of new business received by Scottish manufacturers from abroad also rose at a strong pace in November, with demand from US and China being the key drivers.

Scottish private sector companies again reduced their backlogs of work during the latest survey period, albeit at a weaker pace than that recorded in October. Firms often commented on the utilisation of spare resources to lower outstanding business levels.

Latest data highlighted a further rise in average costs faced by private sector firms. Although inflation was weaker in November than October, it was stronger than both the one-year and long-run series averages. Higher raw material, fuel and wage costs were reported as key drivers of inflation.

Overall, firms were able to pass on only some of the rise in average costs to clients in the form of higher charges in November. Manufacturers raised factory gate prices at a marked rate, while discounting remained evident in the service sector.

Donald MacRae, Chief Economist at Bank of Scotland, said: “This month’s robust recovery in manufacturing partially offset the fall in service activity extending the slowdown in the Scottish economy into November.

“Scottish manufacturers saw a welcome strong increase in the volume of new export orders during the month providing evidence of an export led recovery. The sector also recorded a solid rise in production, the strongest since August. Weakness was focused on the service sector with the business services and travel, tourism and leisure sectors all seeing declines in activity. However, financial services recorded a modest rise.