Private sector faces downturn
The decline in new business is accelerating
A CONTINUATION of the downturn in the private sector has reached a 15-month low, with output falling sharply amid an accelerated decline in new business, according to a survey yesterday.
The Standard Bank South Africa purchasing managers’ index (PMI) fell to 47.5 last month from 47.9 in September, signalling further deterioration in business conditions.
Slack demand and poor economic conditions led companies to shed staff and put brakes on purchasing.
Standard Bank said there was little appetite for companies to recruit new employees during the month.
New business
Kuvasha Naidoo, a Standard Bank economist, said the continued decline in the PMI in October to its lowest level in 15 months had taken place despite a drop-off in days lost due to load shedding and was, therefore, all the more concerning.
“Output has been in contraction for six consecutive months and producer intentions to downscale are evident in their decision to reduce employment.”
The survey found a sharper decline in new business was the main reason behind the lower headline PMI.
“Surveyed companies linked weaker demand to market uncertainties and exchange rate factors. Moreover, the data showed that new export business also fell at a marked rate.”
The Standard Bank South Africa PMI is compiled by Markit. It said a lack of demand and poor economic conditions, meanwhile, had led to lower levels of activity in South Africa’s private sector.
The PMI has now posted below the crucial 50-point mark for five months in a row.
The PMI has now posted below the crucial 50-point mark for five consecutive months.
Naidoo said this was the first time in the survey’s history that the employment index had been below 50 for two consecutive months.
Importantly, he said, the shedding of jobs was not due to wage increases and coincided with the average staff costs increasing at the slowest pace in the survey’s history.
Meanwhile, the business confidence index recovered from a 22-year low in October, after market trends positively influenced the immediate short-term business climate.
The adverse circumstances prevailing in September turned around in October and saw the SA Chamber of Commerce and Industry’s (Sacci) business confidence index (BCI) rising to 88.4 last month from 81.6 in September.
Sacci
“Although the October BCI may not represent a turnaround, it provisionally arrested the downward momentum in business confidence,” said Sacci.
Sacci said developments within local and global financial markets and economies had caused much of the important economic and market trends to positively influence the short-term business outlook and climate in October.
“However, physical and real economic developments will eventually determine the sustainability of these positive developments over the short to medium term,” it said.
Sacci said the improvement in business confidence in October was mainly influenced by retail sales volumes, merchandise export volumes and share prices. However, real economic, as well as financial circumstances, were less conducive to business confidence in October than in the same month in 2014, Sacci said. It cited the uncertainty with international capital flows hinging on interest rate decisions in the US, the world’s biggest economy.