Manufacturing purchasing managers’ index is on the rise

SOUTH Africa’s manufacturing purchasing managers’ index (PMI) rose to its highest since February 2017, hitting 51.5 points in July from 47.9 points in June.

The Absa PMI showed that the employment index increased by a surprisingly large 4.8 points in July – the largest level since early 2016.

Lisette IJssel de Schepper, an economist at the Bureau of Economic Research, attributed the rise to an improvement in business activity.

“The output index managed to edge above 50 points for the first time since February. This, in turn, contributed to the increase in the employment index,” De Schepper said.

The data comes a day after Statistics South Africa said the manufacturing sector led second quarter’s job losses after the sector let go of more than 100 000 workers in the period.

Manufacturing also plunged 6.4 percent in the first three months of the year, the biggest drop since the second quarter of 2015, and reversing from a 4.3 percent gain in the last quarter of 2017. Last month’s 4.5 points to 50.3 points in the business index follows two consecutive months of decline.

The new sales orders index more than recovered from June’s losses, leaping to 52.8 index points in July, while the inventories index remained below the neutral 50-point mark for a sixteenth consecutive month.

Investec economist Lara Hodes said the improvement in business activity had supported employment in the sector in the period.

June’s manufacturing production figures are expected to be released next week after output in the sector rose 2.3 percent year-on-year in May beating market expectations of a 0.6 percent fall. It was the biggest gain in industrial output in four months.

“After falling by 3.2 points in June, the employment index recovered notably in July, jumping 4.8 points and shifting into expansionary territory,” Hodes said.

The purchasing price index increased sharply for a second consecutive month in July. At 83.6 points, the index is at its highest level since early 2016 and almost 20 points above May’s reading of 65.5 index points.

An economist at Capital Economics Yasemin Engin said yesterday’s reading was a positive sign that activity picked up going into the third quarter. “Last month’s manufacturing PMI data is encouraging amid a series of disappointing data that has recently come out of South Africa,” Engin said.

“The pick-up in South Africa’s manufacturing PMI for July supports our view that the economy will strengthen in the second half of this year”.

The June manufacturing production figures are expected to be released next week.