File image: IOL
File image: IOL

Manufacturing PMI shows its first expansion in seven months

By Kabelo Khumalo Time of article published Aug 2, 2019

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JOHANNESBURG – Data from the Absa manufacturing purchasing managers' index (PMI) on Thursday recorded its strongest reading last month since June 2016, with activity in the sector expanding for the first time in seven months.

The PMI increased to 52.1 points in July from the 46.2 points in June on the back of a surge in new-sales orders and business activity in the period.

Lisette IJssel de Schepper, an economist at Bureau for Economic Research, said four of the five major subcomponents came in above the neutral 50-point mark, signalling an expansion in activity. 

“However, given growing concerns about the health of the global manufacturing sector, it remains to be seen whether this improvement can be sustained going forward. Indeed, while purchasing managers continue to expect conditions to improve in six months’ time, they are less optimistic than before,” De Schepper said.

READ: South Africa's PMI drops in May

Manufacturing output was one of the main negative contributors to the shock 3.2 percent gross domestic product in the first quarter with production in the sector declining 8.8 percent in the three months to March.

Investec economist Kamilla Kaplan said that activity in the manufacturing sector was likely to be restrained by weak export prospects and muted domestic demand. “On the export side, growth is expected to be constrained by the effects of subdued global economic activity and trade. This should be particularly evident in the performance of manufactured goods exports,” Kaplan said.

“The last global manufacturing PMI for June confirmed that global new export orders fell at the fastest rate in six years. Against this backdrop, South Africa’s manufacturing sector can be expected to continue suffering from weak momentum.” The index tracking business activity surged from 44.5 to 56.9 points while the new sales index rose from 46.2 to 54.5 points.

READ: PMI plunges to a 5-month low on rolling power cuts

The employment index recovered from June’s decline to reach 43.1 index points in July, but still well below the neutral 50-point mark.

The purchasing commitments index also recovered from June’s losses and increased by 6.3 points to 44.1 points last month. 

The Steel and Engineering Industries Federation of Southern Africa's Marique Kruger said the volatility in the PMI trend mirrored the difficult operating environment for local producers in the metals and engineering cluster. 

“It is important there is a continuous rebound in the PMI, in order to boost business confidence and expectations in the medium to long term,” Kruger said.

Meanwhile, data released by the Department of Trade and Industry showed aggregate domestic sales of new vehicles of 46 077 units sold in July reflected a decline of 1 779 units or 3.7 percent from the 47 856 vehicles sold in July last year. However, commercial vehicles sales increased by 2.9 percent on a yearly basis.

Naamsa executive director Mike Mabasa said the increase in all commercial vehicle segments bodes well for the remainder of the year. 

“However, in a low growth environment other structural reforms that deal with underlying issues in the economy need to complement the lowering in the interest rate for sustained improvement in business and consumer confidence going forward,” Mabasa said.


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