JOHANNESBURG – The latest data from the troubled manufacturing sector painted a picture of a domestic economy in a weakened state after the purchasing manager’s index (PMI) for August plunged 8.1 points to 43.4 points - the lowest reading in more than a year.
The Absa PMI data released yesterday showed that the sharp decline in last month’s reading was on the back of a slowdown in the new sales orders index as well as the business activity index.
The index tracking expected business conditions in six months’ time declined for a sixth consecutive month to reach 44.6 points in August – the lowest level since early 2016.
“The fact that a further deterioration is expected from the bleak picture of current conditions, as reflected by the August PMI survey, is very concerning,” said Lisette IJssel de Schepper, an economist at Bureau for Economic Research.
New sales orders tanked to 39.9 points last month from 52.8 points in July, while the employment index also slipped into contraction territory shedding more than 5 points to 45.5 points.
Data from Statistics SA last month showed that the embattled sector shed 108 000 jobs during the second quarter, the biggest contributor to the increase in the unemployment rate in the period.
Worrying
Lara Hodes, an economist at Investec, said it was worrying that the index tracking expected business donations had worsened in the past six months. “This together with a fall in the PMI leading indicator back to below one (with inventories exceeding new sales orders), does not paint a positive picture for the manufacturing sector going forward,” Hodes said.
Activity in the sector was also hamstrung by deterioration in sentiment on the back of the recent turmoil in emerging markets financial markets in August.
South Africa was among the hardest hit during the sell-off, with the rand falling by 10 percent against the dollar last month.
The manufacturing sector was also a significant contributor to the first quarter gross domestic product (GDP) 2.2 percent contraction.
Manufacturing decreased 6.4 percent in the first three months of the year, the biggest drop since the second quarter of 2015, and reversing from a 4.3 percent gain in the prior quarter.
Jason Tuvey, a senior emerging markets economist at Capital Economics, said the data provided an early sign that hopes for a sharp rebound in growth in the second half of this year were likely to be disappointed.
“Yesterday’s data will dent hopes that, following its slump in the first half of the year, the South African economy will experience a sharp rebound,” Tuvey said.
Statistics SA is expected to release second-quarter GDP data released today with analysts of the view that the print was likely to show that the economy stagnated after first quarter’s contraction.