PMI figure hits months-long high

Output improvement and new orders counter higher oil and steel prices

BUSINESS conditions in the private sector improved last month at a pace not seen since early 2015, with the Standard Bank purchasing managers’ index (PMI) rising to 51.6 from 50.8 in November.

Though still pointing to modest growth, the latest reading rounded off the best quarter for two years (average 50.9), the bank said yesterday.

The overall upturn was bolstered by faster expansions of output and new work last month.

“Both rose to the greatest extent in 21 months, with anecdotal evidence highlighting a general improvement in client demand,” the bank said.

“Some firms also mentioned investing in new machinery, which helped them raise output.

“That said, growth of total new work was dampened by falling exports.

“The amount of new orders from abroad dropped for the second straight month, despite reports of orders from Russia and some African economies.”

The overall improvement in demand was nevertheless sufficient to generate another round of job creation last month.

“The rate of hiring eased slightly from November, but remained stronger than the series average,” the bank said. “A larger workforce contributed to a decline in outstanding business, reversing November’s rise.”

Purchasing activity also rose in line with greater workloads.

Though remaining modest, the rate of growth accelerated to a 19-month high.

Pre-production inventories increased at a similarly moderate pace. Despite a further pick-up in demand for inputs, companies noted a lack of pressure on supply chains.

Average lead times shortened for the fifth time in seven months, with panellists referring to competition between suppliers, Standard Bank said.

On the price front, both input costs and output charges rose more quickly last month.

Input costs were reportedly driven by higher raw material costs, notably oil and steel.

However, the respective rates of inflation remained slower than long-run trends.

Bank economist Kim Silberman said: “The upswing in economic activity was sustained in December, supporting the suggestion that South African growth may have troughed.

“However, the survey also provides evidence that those sectors reliant on exports are under pressure, perhaps as a result of the dollar exchange rate staying below 15.00.”

The uptick had been attributed to forces on the supply side, such as higher oil and steel prices, which were cited as contributing to an uptick in the purchase prices index.

Silberman said the recovery in the domestic PMI was in line with the recovery in the November PMIs for China and the eurozone, which had shown the best reading since December 2015.