Saudi Arabia's non-oil private sector grew at a slower pace in October, with the Riyad Bank Saudi Arabia purchasing managers' index falling to 54 from 55.3 in September, according to the survey compiled by S&P Global and reported by Arab News last week. Export orders fell for an eighth straight month, and at a sharper rate than in September.

The reading stayed well above the 50 line that separates growth from contraction. It was the seventh consecutive month of expansion and the second-highest level since February. For Asian exporters, contractors and banks with business in the kingdom, the survey offers the most recent read on whether domestic demand can keep carrying the economy while the oil sector recovers from months of disruption in the Strait of Hormuz.

Demand holds at home, weakens abroad

The split between local and foreign customers was the clearest pattern in the October data. Almost a quarter of surveyed companies reported lower export orders, Arab News said. Foreign sales have been falling since March, as the U.S.-Israeli war with Iran disrupted shipping through the Strait of Hormuz and the Red Sea, Arab News reported.

The damage was worst in the spring. In April, S&P Global said new export orders fell at the fastest rate in the survey's history, even as the headline index returned to 51.5 from 48.8 in March. The decline in foreign orders eased considerably by September, according to Arab News, before picking up again in October.

Domestic indicators were firmer. Backlogs of work rose for a second month, purchasing activity grew at the second-fastest pace since February and companies added staff for a fourth straight month, though hiring slowed from September.

Naif Al-Ghaith, chief economist at Riyad Bank, said in the release that the non-oil private sector "continued to demonstrate resilience in October." He added that demand remained positive but was "becoming more selective," and that business expectations stayed positive.

Costs climb, selling prices cool

Price data point to a squeeze on margins. Purchase prices rose at the fastest pace in six months, and staff cost inflation was the highest since February. Output price inflation, by contrast, eased to a nine-month low, suggesting companies were absorbing more of their higher costs instead of passing them on.

That is a change from earlier in the year. In April, input costs rose at the fastest rate since the survey began, driven by raw material and freight prices, and firms raised their selling prices at the second-fastest pace on record, S&P Global said. In September, selling-price inflation was still the second-fastest in more than six years, Arab News reported.

Supply chains have not fully normalized. Supplier delivery times improved in October, but only to the smallest extent since April, according to the survey. Data for the October index were collected from Oct. 12 to 22.

What it means for the wider economy

The PMI follows official estimates showing that the kingdom's economy is still shrinking overall. Flash figures from the General Authority for Statistics showed real GDP fell 3.8% from a year earlier in the third quarter, as oil activities dropped 20.4%, while non-oil activities grew 1.9%, up from 0.8% in the second quarter, Arab News reported. Capital Times covered the third-quarter GDP data when it was released.

Non-oil activity added 1.1 percentage points to growth in the third quarter. The October survey suggests that contribution held up early in the fourth quarter, but at a slower pace than September's peak.

In September, Al-Ghaith tied the strength of non-oil activity to consumer spending, investment, government and Public Investment Fund projects, and the availability of credit, Arab News reported. Those drivers are domestic, which helps explain why the headline index has stayed above 50 even as foreign demand has fallen month after month.

For Asian suppliers, the numbers cut both ways. Saudi buyers are still purchasing more inputs, which supports orders for materials and equipment. Weak export orders, though, mean Saudi manufacturers and traders are selling less abroad, including into Asian markets, while their own costs rise. The October reading also came as purchasing managers' surveys across Asia showed slowing factory momentum at several large exporters.

The next Riyad Bank PMI, for November, is due in early December. October consumer price data from the General Authority for Statistics will be a test of whether the rise in companies' input costs is reaching households.