July manufacturing conditions remain in positive territory

Conditions in the manufacturing sector stayed in positive territory for a third consecutive month in July, according to the latest Absa purchasing managers index (PMI), despite a slight decline from the previous month.

But employment in the sector showed little sign of recovery after it plunged during April, under the harshest restrictions of the coronavirus lockdown, when only essential goods and services could be produced or bought.

The latest Absa PMI, released in conjunction with Stellenbosch University’s Bureau for Economic Research, declined to 51.2 index points in July from 53.9 in June, according to a release from the bank on Monday.

The monthly gauge gives an indication of activity in the manufacturing sector, which accounts for about 13% of SA’s GDP, and is an early indicator of underlying economic activity. A reading below 50 indicates a contraction in activity, while a reading above 50 indicates expansion.

Two important subcomponents — business activity index and new sales orders — also showed monthly declines from June, but both remained in positive territory after falling to historic lows during April as a result of the lockdown.

The business activity index declined to 62.9 in July, from 64.6 in June, but remained at a high level, suggesting further month-onmonth improvement in activity, according to a statement from the bank.

The new sales orders index declined in July to 53.4 index points after surging past 60 in June, but remained well above the neutral 50point mark, signalling a continued expansion in demand, the bank said.

But on the local front, producers supplying the hospitality sector specifically remarked on continued weak demand, while those in the alcoholic beverages industry also reported a renewed drop in sales.

The employment index at 33 points in July, languishes well below the neutral mark, and not far off from April’s record low of 26.6 points.

“The PMI employment indicator suggests that further job losses are likely after an initial hit to employment expected in the second quarter,” the banks said.