JOHANNESBURG – Business activity in South Africa stagnated in September, with the Purchasing Managers Index (PMI) hitting a 14-month low in September at 43.2 index points from 43.4 points in August.
The Bureau for Economic Research, which compiles the data for Absa, said the PMI averaged 46 points in the third quarter.
It said the slide was underpinned by three of the five sub-indices, with new sales orders declining to 39.6 points from 39.9 points in August.
It said the employment index fell 3.5 percent to 42 points, while sales orders and inventories deteriorated 2.2 percent and 0.3 points respectively.
The group said while business activity edged up slightly by 1.5 points, it remained subdued at 38.7 points, “indicating that manufacturing output is under significant pressure.”
NKC Economics said the employment sub-index fell to its weakest level in more than four years.
NKC’s Gerrit van Rooyen said this would dash any hopes of improved employment in the manufacturing sector in the third quarter.
“That is troubling, given that employment in the sector has declined by about 55 000 over the past year, according to Statistics South Africa’s Quarterly Labour Force Employments figures,” Van Rooyen said.
Muted business activity has continued to constrain employment levels, indicated by a further 3.5 point slide in the employment index to 42 points, its lowest reading in four years.
Manufacturing cost pressures, reflected by the purchasing price index rose markedly again in September, after easing somewhat in August. The index gained 6.2 points in September to 85.9 points.
“This is indicative of the mounting cost pressures manufacturers are facing, underpinned by local currency weakness, elevated fuel prices and other administered overheads,” Investec economist Lara Hodes said.
The PMI is a reliable gauge of where production numbers are headed.
Hodes said additionally heightened external risks remained, leaving South Africa’s economy vulnerable to further weakness going forward.
“As such, we have downgraded our 2018 growth forecast to 0.7 percent year-on-year from 1.4 percent previously,” she said.
The Steel and Engineering Federation of South Africa Economist Michael Ade said given the poor gross domestic product growth recorded in the second quarter of 2018, the performance of the PMI in the third quarter of 2018 raised concerns of whether the South African economy would rebound from the prevailing technical recession.
“The deteriorating trend confirms the challenges faced by businesses amid increasing operational costs underpinned by a volatile exchange rate, rising energy costs and galloping petrol prices,” Ade said.