Private sector firms in Kenya cut jobs in May for the first time in over a year due to weaker consumer spending, higher cost of operations and business disruptions affecting activities.
New data from Stanbic Bank Kenya’s Purchasing Managers’ Index (PMI) showed companies reduced staffing levels during the month, ending a stretch of continuous job creation that had lasted since the start of 2025.
Many businesses said the reductions mainly affected temporary workers as lower demand eased pressure on capacity.
The PMI fell to 46.6 in May from 49.4 in April, the steepest deterioration in business conditions since July 2024. A reading below 50 signals a contraction in activity.
The downturn reveals a strong slowdown across the private sector. New orders declined for a third consecutive month and at their fastest pace since mid-2025 as customers cut spending and tightened household budgets.
Business activity also weakened further, with firms linking the decline to lower sales and softer demand.
Construction and services companies reported falls in both output and new orders during the month. Manufacturing was the only sector to record growth in production, while declines were recorded elsewhere. Agriculture and retail businesses were among those that reduced staff numbers.
Private sector employment fell after firms reported they had enough capacity to handle current workloads. Backlogs of work also declined for a third straight month, reducing the need for additional hiring.
Christopher Legilisho, economist at Standard Bank, said: “The Stanbic Bank PMI data for May reflects a deterioration of business activity by private sector firms. Inventory purchases slowed, from being expansive, because of weakening sales, cash flow concerns, and rising costs.
“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.”
High costs added to the challenges facing businesses and, ultimately, jobs in Kenya. The survey showed overall input price inflation accelerated to its strongest level since November 2023, driven largely by higher purchase costs, fuel expenses and transportation charges.
Although wage costs continually increase, businesses kept salary growth moderate. Many firms also slowed inventory purchases and held back spending as they sought to preserve cash due to weaker sales and tighter margins.
At the same time, companies passed part of the higher costs on to customers. Selling prices rose at the fastest pace in two and a half years, with all five monitored sectors reporting increases.
The weaker business conditions will likely lead to concerns about employment prospects, particularly as thousands of young Kenyans enter the labour market every month. Consumer-facing businesses, including startups and technology firms that depend on household spending, could also face softer demand if spending remains subdued.
Despite the difficult operating environment, firms were optimistic about the year ahead. Business confidence climbed to its highest level since February 2023, supported by plans to increase advertising, introduce new products and expand digital sales channels.
Legilisho added: “Inflationary pressures have intensified, constraining demand conditions, with input prices, purchase costs and output prices driven up by higher fuel and transportation costs. Still, despite subdued business momentum, firms remain optimistic about future conditions.”
