Manufacturing conditions improve in September

The PMI has stayed in positive territory for five consecutive months since the economy slowly started opening up following the hard lockdown

Manufacturing conditions continued to recover in September as a shift to level 1 of the lockdown in the middle of the month is likely to have driven improvements in the sector.

The Absa Purchasing Managers’ Index (PMI), released in conjunction with Stellenbosch University ’ s Bureau for Economic Research, rose to a 21year high, reaching 58.3 index points.

But this does not translate to official manufacturing activity being back to pre-pandemic levels, the bank said in a statement, on Thursday.

“Due to the month-on-month comparison asked for in the PMI questionnaire, the high level merely means that conditions continue to improve,” the Bank said, with more respondents reporting an increase in output, for example, instead of no change or a decline compared to the previous month.

“This can still be entirely consistent with the level of output remaining well below that recorded prior to the lockdown, ” it said.

The improvement — up from August’s 57.3 — was better than expectations for 55 points according to a Bloomberg poll.

The monthly gauge provides a read on business conditions in the manufacturing sector, which accounts for about 13% of SA’s GDP. A reading below 50 indicates a contraction in activity, while a reading above 50 indicates expansion.

The PMI has stayed in positive territory for five consecutive months since the economy slowly started opening up following the hard lockdown during all of April. But the bank noted that purchasing managers remain optimistic about business conditions going forward. The index tracking expected business conditions in six months’ time ticked up to 64.5 from 63.4 in August, from a low of just 27.3 index points in April. The sub-component covering business activity has averaged 64.6 points in the third quarter after a slump in the second quarter under the worst of the lockdown restrictions.

This positive quarterly performance suggested that the sector should record a sizeable quarter-on-quarter rebound from the second-quarter slump, according to the Bank.

The employment index, however, continued to be a drag on PMI, reaching 44.5 points. This still points to lower employment “but suggests that the pace of retrenchments slowed ”.

According to Stats SA’s Quarterly Labour Force Survey, released earlier this week, the manufacturing sector lost 185,000 formal-sector jobs in the second quarter.