PMI is down to 46.7 points

The Star Early Edition - - BUSINESS REPORT - Ka­belo Khu­malo

THE ABSA man­u­fac­tur­ing Pur­chas­ing Man­agers In­dex (PMI) col­lected by South Africa’s Bureau of Eco­nomic Re­search (BER) plunged to 46.7 points last month from 51.5 points recorded in May largely due to slug­gish new or­der sales and lower busi­ness ac­tiv­ity.

The PMI’s busi­ness ac­tiv­ity in­dex eased to 45.4 points in June from the 52.3 points recorded in the pre­vi­ous month, while the new sales or­ders in­dices slowed from 54.1 points in May to 43.7 points last month. The em­ploy­ment in­dex re­mained largely un­changed de­clin­ing marginally from 47.4 points in May to 47.1 points in the pe­riod un­der re­view.

BER econ­o­mist Lisette IJs­sel de Schep­per yes­ter­day said that the de­te­ri­o­ra­tion was broad-based with four of the five main sub­com­po­nents com­ing in lower in June com­pared to May.

IJs­sel de Schep­per said the in­dex was also wary of the po­ten­tial strike in the steel and en­gi­neer­ing sec­tors if a wage agree­ment is not reached soon.

“As such, the in­dex track­ing ex­pected busi­ness con­di­tions in six months time fell from 61.4 points to 50 points in June,” IJs­sel de Schep­per said. “This is the low­est level since Fe­bru­ary 2016.”

The PMI also showed that in­ven­to­ries in­dex ticked lower to 48.9 in­dex points in June from 49.7 points recorded in the prior month.

Stuck

IJs­sel de Schep­per said the in­dex stub­bornly re­mained un­der the neu­tral 50 points mark for the past three months.

“This marks the third con­sec­u­tive month that the in­dex stayed stuck in neg­a­tive ter­ri­tory. De­spite this, the in­dex rose above the new sales or­ders read­ing, which means that the PMI lead­ing in­di­ca­tor moved back be­low one. This usu­ally does not bode well for out­put growth go­ing for­ward.”

The pur­chas­ing com­mit­ments in­dex de­clined to 39.4 points in June, down from 44 points in the pre­vi­ous month. Absa said the in­dex av­er­aged 39.8 points in the sec­ond quar­ter of this year, well be­low the av­er­age of 48.8 points recorded in the first quar­ter. The price in­dex de­clined by 7 points to 61.3 in­dex points in June, its low­est level in eight months.

Macroe­co­nomic sta­tis­tics web­site Trad­ing Eco­nom­ics said man­u­fac­tur­ing PMI in South Africa av­er­aged 51.4 points from 1999 un­til 2017, reach­ing an all-time high of 64.2 points in July of 2006 and a record low of 34.2 points in April of 2009.

John Ash­bourne, Africa econ­o­mist at Cap­i­tal Eco­nom­ics, said that the sharp fall in man­u­fac­tur­ing PMI sug­gested that the sec­tor strug­gled to­wards the end of the sec­ond quar­ter.

“But we would cau­tion against read­ing too much into an in­di­ca­tor that has be­come in­creas­ingly volatile in re­cent quar­ters. “Ev­ery sin­gle sub-in­dex of the PMI per­formed worse in June than it had in May. The mea­sure of fu­ture con­di­tions dropped from 61.4 points in May to 50 points in June, the worst read­ing since Fe­bru­ary 2016,” Ash­bourne said.

“We would, how­ever, cau­tion against read­ing too much into this very volatile in­di­ca­tor. The PMI has fre­quently swung above and be­low the 50 point mark in re­cent months. Ac­tual man­u­fac­tur­ing pro­duc­tion growth, on the other hand, has been much more sta­ble.”

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