Businesses in the manufacturing industry in South Africa have remained less optimistic about future activity for the second consecutive month after output slipped into contractionary territory in September.
The S&P Global South Africa Purchasing Managers Index (PMI), released yesterday came in at 49.9 in September, down slightly from August's 51.0, indicating a broad stagnation in the country’s private sector.
The S&P reading is in line with the Absa PMI, which declined by 4.3 points in September to 45.4 as conditions in the manufacturing sector deteriorated at the end of the third quarter.
S&P said total output in the private sector slipped back into decline in September, after last month's data signalled the first expansion in exactly a year.
According to survey panellists, output was often reduced due to intensified load shedding and high material costs, though new business levels approached growth territory.
The contraction was nonetheless modest and slower than those registered between March and July.
S&P said what restricted the fall in output was another move towards stability on the demand side as new order volumes were largely unchanged following only a fractional drop in August.
It said while inflation and load shedding continued to dampen sales in several instances, and weak external market conditions hit export orders, several companies highlighted a recovery in new work amid customer gains.
This was particularly true for wholesale and retail, which was the only monitored sector to register an outright upturn in new business. Stable demand conditions gave firms additional impetus to raise employment, with the latest data indicating job creation for the second month running. Firms often added to their workforces as part of efforts to get outstanding work levels under control, which duly fell for the first time since.
S&P Global Market Intelligence senior economist David Owen said the latest PMI reading of 49.9 signalled a fairly neutral state for the South African private sector.
Owen said new business levels moved even closer to growth territory, but output fell amid sustained load shedding disruption and cost pressures.
“With many panellists reporting that these factors had also suppressed client demand, this suggests that sales could otherwise be rebounding at this juncture,” Owen said.
“Eskom's projection that load shedding will be capped over the summer provides additional hope that businesses will be able to rebuild new orders and activity as capacity constraints ease.
“Headline inflation is also on the way down, slipping to 4.7% in July. That said, PMI data suggest that cost pressures are still severe, with fuel and import prices particularly taking their toll. Output charges also rose steeply, indicating a degree of price stickiness that will continue to feed through to consumers.”
On the flip side, S&P said the renewed downturn in output affected purchasing trends. Input buying dropped for the sixth time in seven months, after having risen in August in line with increased activity. As well as lower input requirements, efforts by some companies to cut holding costs contributed to a slight drop in inventory levels.
Delivery times were again impacted by load shedding and port delays, lengthening solidly since the prior survey period, with cost-cutting measures coming amid another marked rise in business costs across the private sector.
On the price front, S&P said input inflation was the sharpest since May, amid rising fuel prices and sustained currency weakness although hiring efforts and salary demands underpinned a solid increase in wage costs.
Finally, the degree of confidence about future activity eased to the weakest since April but businesses pinned their hopes on positive output forecasts that economic conditions and household spending will recover.