PMI is down to 46.7 points
THE ABSA manufacturing Purchasing Managers Index (PMI) collected by South Africa’s Bureau of Economic Research (BER) plunged to 46.7 points last month from 51.5 points recorded in May largely due to sluggish new order sales and lower business activity.
The PMI’s business activity index eased to 45.4 points in June from the 52.3 points recorded in the previous month, while the new sales orders indices slowed from 54.1 points in May to 43.7 points last month. The employment index remained largely unchanged declining marginally from 47.4 points in May to 47.1 points in the period under review.
BER economist Lisette IJssel de Schepper yesterday said that the deterioration was broad-based with four of the five main subcomponents coming in lower in June compared to May.
IJssel de Schepper said the index was also wary of the potential strike in the steel and engineering sectors if a wage agreement is not reached soon.
“As such, the index tracking expected business conditions in six months time fell from 61.4 points to 50 points in June,” IJssel de Schepper said. “This is the lowest level since February 2016.”
The PMI also showed that inventories index ticked lower to 48.9 index points in June from 49.7 points recorded in the prior month.
Stuck
IJssel de Schepper said the index stubbornly remained under the neutral 50 points mark for the past three months.
“This marks the third consecutive month that the index stayed stuck in negative territory. Despite this, the index rose above the new sales orders reading, which means that the PMI leading indicator moved back below one. This usually does not bode well for output growth going forward.”
The purchasing commitments index declined to 39.4 points in June, down from 44 points in the previous month. Absa said the index averaged 39.8 points in the second quarter of this year, well below the average of 48.8 points recorded in the first quarter. The price index declined by 7 points to 61.3 index points in June, its lowest level in eight months.
Macroeconomic statistics website Trading Economics said manufacturing PMI in South Africa averaged 51.4 points from 1999 until 2017, reaching an all-time high of 64.2 points in July of 2006 and a record low of 34.2 points in April of 2009.
John Ashbourne, Africa economist at Capital Economics, said that the sharp fall in manufacturing PMI suggested that the sector struggled towards the end of the second quarter.
“But we would caution against reading too much into an indicator that has become increasingly volatile in recent quarters. “Every single sub-index of the PMI performed worse in June than it had in May. The measure of future conditions dropped from 61.4 points in May to 50 points in June, the worst reading since February 2016,” Ashbourne said.
“We would, however, caution against reading too much into this very volatile indicator. The PMI has frequently swung above and below the 50 point mark in recent months. Actual manufacturing production growth, on the other hand, has been much more stable.”