Rising PMI fails to impress analysts
SOUTH African manufacturing growth improved slightly last month but remained under pressure, with the seasonallyadjusted purchasing managers’ index (PMI) ticking up to reach 51.4 points from 50.8 previously.
This suggested a solid recovery in quarterly manufacturing output growth in the second quarter of this year was unlikely, said Lisette IJssel de Schepper, an economist at the Bureau for Economic Research (BER), which compiles the PMI.
The rise in the PMI reading was in contrast to market expectations.
Investec economist Kamilla Kaplan said the higher reading last month was mainly due to manufacturers increasing their production for the first time in four months, and slowing the pace of retrenchments.
Azar Jammine, the chief economist at Econometrix, said reduced incidence of load shedding and a relative absence of industrial action must have assisted in supporting business sentiment at the margin.
“Although the PMI increased slightly more than expected, it is still quite weak and only modestly above above the 50.0 level, which distinguishes between expansion and contradiction in manufacturing,” he said.
NKC Africa Economics analyst Bart Stemmet said that despite the rebound of the past two months, the PMI was still only marginally in positive territory.
In fact, the PMI has averaged a lowly 49.6 points during the first half of this year, broadly in line with data from Statistics SA showing that the manufacturing sector expanded by only 0.4 percent year on year during the first quarter.
“The secondary sector is lacking momentum, and persistent electricity outages during the winter months and soft foreign demand are doing the manufacturing sector no favours,” Stemmet said.
There was a mixed outcome for the different components of the PMI being measured.
The business activity index rose above the 50-point mark for the first time since January.
The BER said: “The index rose to 51.7 from 49.6 in May. In line with the improvement in output, the employment index rose to 48.7 points, the best level since June 2014. However, output growth will have to be sustained going forward for manufacturing employment to improve notably.”
Kaplan said the employment sub index had been entrenched below the 50 point mark for more than a year.
“This is consistent with the latest official employment statistics, which confirm that employment levels in the manufacturing sector have fallen since the 2008/09 recession.”
The new sales orders index fell to 51.7 points from 52.2.
The BER said while domestic demand remained under pressure, some respondents benefited from improved exports.
The inventories index rose for a third month to 56.8 points.
The BER said manufacturers expected conditions to improve as the index for expected business conditions in six months’ time rose to 62 index points.