Manufacturing activity in South Africa is expected to recover, at least partially, in August after falling further to its lowest in two years in July, dragged lower by transport delays due to the burning of trucks on the highways.
The seasonally adjusted Absa Purchasing Managers’ Index (PMI) released yesterday fell further by 0.3 index points to 47.3 in July, down from 47.6 in June.
The latest headline PMI reading, compiled by the Bureau for Economic Research on behalf of Absa, pointed to the sixth consecutive month of contraction in manufacturing activity and the steepest since July 2021.
Absa said that despite a reprieve in the intensity of load shedding, the business activity index saw a sharp decline, tanking by almost 11 points after moving up slightly in June.
It said the PMI new sales orders index also moved lower and there was most likely some other explanation for the jump in supplier delivery times, as it was not demand driven.
The new sales orders index lost ground for a second consecutive month as weak activity in major South African export markets, including the Eurozone and the UK, could also be curtailing foreign demand for South African manufactured goods.
Absa said the longer delivery times in July might well reflect delays associated with the torching of multiple trucks on the N3 transport corridor during the month.
If this is the case, Absa said the headline PMI was kept artificially afloat in July by the meaningful rise in the supplier deliveries index.
Absa senior economist Miyelani Maluleke said the manufacturing sector had a setback at the start of the third quarter just after what looks to have been a decent second quarter.
Maluleke said that besides a ramp-up of load shedding intensity in July after the unexpected reprieve in June, it was not immediately clear what drove the large decline in business activity.
“Besides the return of more intensive power cuts, delays in receiving inputs amid the transport disruptions on the N3 corridor through the month of July may explain the large drop,” Maluleke said.
“The manufacturing hubs around Johannesburg may have been particularly hard hit by the shipment delays.”
The supplier deliveries index rose to the highest level so far this year as pre-Covid longer delivery times were mostly associated with robust demand conditions.
The employment index remained in contractionary territory, falling slightly to 47.4 points from 47.9 points previously.
However, Absa said to the extent that transport delays contributed to the decline in business activity during July, activity should recover in August, at least partially.
Investec economist Lara Hodes said domestic demand remained subdued with both business and consumer confidence falling further into depressed territory in the second quarter of 2023.
“Indeed, South Africa’s poor growth outlook for this year of just 0.2% is not conducive to a sustainable lift in employment,” Hodes said.
“Favourably, the purchasing price index declined further to 64.8 in July, previously 71.3. This is the lowest reading this year and will offer manufacturers some reprieve.”
The index measuring expectations of business conditions in six months’ time remained in positive terrain, increasing slightly from 52.4 to 53.9 points.