Index shows more factory activity and greater confidence
ACTIVITY in SA’s manufacturing sector is improving and input costs are easing due to a firmer rand, but questions remain over how sustainable this will be.
Increased demand for domestically produced goods was one of the reasons the Barclays purchasing managers’ index (PMI) rose to a three-year high of 54.9 last month, from 50.5 in March.
The weak rand makes imports more expensive and encourages consumers to buy locally produced goods instead. “Some respondents noted that import substitution led to an improvement in domestic demand, while exports also rose,” Barclays said.
This was the second consecutive month that the index, compiled by the University of Stellenbosch’s Bureau for Economic Research, was above 50. A level above 50 indicates expansion in manufacturing sector activity. An improvement in manufacturing activity suggests that actual manufacturing output could increase, which would support economic growth.
The price index of the PMI declined, implying slower price increases and some relief for manufacturers. The decline in the price index captured how SA was benefiting from a recovery in the rand, although this trend of alleviating price pressures could be hindered by a rebound in commodity prices, Bidvest Bank head of treasury, Ion de Vleeschauwer, said.
Purchasing managers were notably more upbeat about shortterm prospects, with the index on expected business conditions in six months’ time rising 4.8 points to 55.9 last month.
The sustained improvement and the broad-based nature of the uptick, with four out of the five major subcomponents improving, were encouraging signs that the sector might have reached a bottom and could continue to trend upwards in coming months, Barclays said.
“The fact that all five of the PMI’s major subcomponents are now above 50, the last time this happened was in August 2013, suggests a change of fortune,” Barclays said.
Capital Economics Africa Economist John Ashbourne cautioned that the latest index probably suggested a dissipation of the pessimism that built up late last year rather than signalling significantly improved conditions on the ground. It was too early to assume that output growth would accelerate significantly, he said.
The uptick in business activity also supported jobs, with the employment index rising for a second consecutive month. Although the index — at 50.4 — is above the key 50-point mark for the first time since April 2014, Barclays warned that this alone did not signal a turnaround in employment yet.