Wiseman Khuzwayo
THE RAND declined against the dollar for the third day yesterday after a report showed local factory activity fell more than expected in February.
The local unit also took a hit from data released last Friday that showed January’s R24.22 billion trade deficit was the worst since 2010 as gold and platinum exports fell and oil imports increased.
The rand yesterday was bid at R11.7316 at 5pm against the dollar while the greenback hit an 11-year high against a basket of currencies.
The seasonally adjusted Kagiso purchasing managers’ index (PMI) fell by a steeper-than-expected 6.6 points to 47.6 in February, signalling that the manufacturing sector was taking strain at the time of Eskom’s load shedding.
The PMI astonishingly jumped to 54.2 in January, from a reading of 50.2 in December.
According to Abdul Davids, the head of research at Kagiso Asset Management, January’s figure was artificially high due to seasonal factors and a decline was expected in February, albeit not of the magnitude that was recorded.
A 16.2 decline in the business activity index in February was the main driver of the fall in the headline index.
Davids said the business activity index has been very volatile since October, swinging by an average of 10.8 points from month to month.
“This reflects the uncertainty and volatility of the underlying environment as the timing and frequency of load shedding is unstable. This will remain a key constraint in the manufacturing sector as interruptions in electricity supply affects manufacturers’ ability to produce and directly dampens domestic demand.”
The new sales order index fell by 4.4 points to 49.3.
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The employment index slumped even further and is now at 43 index points. While the inventories index declined from its exceptionally high level in January, at 53.3 points it remains in positive territory.”
Azar Jammine, the chief economist at Econometrix, said there shouldn’t be alarm about a single month’s poor reading, given the excessive volatility witnessed in recent months in the PMI.
He said the February PMI was an indicator of the apprehension with which manufacturers were viewing the current business climate.
However, it was dangerous to draw too many negative conclusions from a single month’s data, Jammine said.
Kamilla Kaplan, an Investec economist, said for the first time since August, the index level dropped below the 50 mark.
“An additional suppressing factor on output growth is the external demand. The global PMI for export orders for new manufactured goods moderated in the fourth quarter of 2014, and in January 2015 the rate of expansion slowed even further.”