Manufacturing figures improve as lockdown eases
Particularly encouraging was the increase in new sales orders, which rose to 60.3 from 41.2 in May
Conditions in the manufacturing sector reached a multi-year high in June, as the economy went into level 3 lockdown with fewer restrictions, allowing more businesses to open up.
But despite the latest Absa purchasing managers’ index (PMI) reaching its highest level since August 2013, this does not mean actual production has bounced back, the bank cautioned on Wednesday.
The PMI — released in conjunction with Stellenbosch University ’ s Bureau for Economic Research — rose to 53.9 points in June, up from May’s 50.2, pointing to a continued monthly recovery after April, when sub-components for business activity and new sales orders hit historic lows.
June’s uptick “does not mean that the level of actual manufacturing production rose to a multi-year high”, Absa said in a statement on the release. “Many respondents noted that despite the monthly uptick, production was still below normal capacity.”
The monthly gauge gives insight about conditions in the sector, which accounts for about 13% of GDP. A reading below 50 indicates a contraction in activity, while a reading above 50 indicates expansion.
The improvement reflects the systemic removal of lockdown restrictions, said Stanlib chief economist Kevin Lings.
The sub-component measuring supplier performance — which moves inversely to the headline index and has been providing an artificial boost to the overall number in recent months — declined to 61.9 points in June. Though it probably still left the PMI elevated, the decline is encouraging and suggests supply chains are starting to function better, Lings said.
Particularly encouraging was the increase in new sales orders, which rose to 60.3 from 41.2 in May, said Lings. Though the figure was coming off “an incredibly low base”, it signaled that activity is picking up.
The PMI was released after the dismal growth results for the first three months of the year, which showed growth contracting for a third consecutive quarter. The 2% decline in the first months of the year did not incorporate the worst of the lockdown effects, which will be seen in the second-quarter numbers. The manufacturing sector was one of the biggest drags on GDP, declining 8.5%.
The PMI’s employment index remained firmly in negative territory at 32.7 points. The sector accounts for 10.4% of employment in SA — which is now battling its highest levels of joblessness. This number “remains desperate”, said Lings and suggested that though businesses are reopening they are not doing so at their full staff complement.