JOHANNESBURG - The Absa Purchasing Managers’ Index (PMI) in November remained stuck below the neutral 50-point mark for a sixth straight month, despite reaching its highest level since May.
The seasonally adjusted PMI rose to 48.6index points last month from 47.8points in October. The fact, however, that the PMI remained in contraction territory in this period suggested that the sector still faced headwinds.
William Jackson, a senior emerging markets economist at Capital Economics, said the data pointed to further signs that the manufacturing slump was coming to an end.
“Admittedly, the PMI remains below the 50-point mark which, in theory at least, separates expansion from contraction. On past form, last month’s reading appears to be consistent with a fall in manufacturing output of around 2percent year on year. “However, the survey hasn’t had a great relationship with the hard activity data in the past few years and has tended to overstate the weakness of manufacturing during downturns,” Jackson said.
The PMI’s employment index dipped lower in November, after an improvement in the previous month, suggesting that the sector is unlikely to generate significant employment during the fourth quarter. However, encouragingly, the business activity index continued its recent upward trend and rose to 48points in November, also its highest level since May. The purchasing price index (PPI) surged to 80.7 index points in November - the highest level since June 2016. The surge in the PPI was on the back of weaker rand exchange rate and higher Brent crude oil price in the period.
Elize Kruger, an analyst at NKC Africa Economics, said she did not expect to see a major improvement in business conditions in the manufacturing sector during the first half of next year. “Indicators of current business conditions in the manufacturing sector remain severely depressed, reflecting weak economic growth as well as very low levels of business and consumer confidence.”
The new sales orders index only fell back slightly to 49.1points in November from 49.9points in the previous month. The inventories index recorded a sharp drop to 43.2 points in November, down from 48.8points in October.
Michael Ade, the chief economist at the Steel and Engineering Industries of Southern Africa, said the improved performance of the PMI index was expected, given the improving global demand conditions.
“Instead of the usual wait-and-see attitude earlier adopted by the relevant stakeholders that had been holding back production during the first half of the year, there seems to have been an increase in the momentum from the second half of the year going into the festive season,” Ade said.
Meanwhile, the main event this week will be the release of the third quarter gross domestic product tomorrow. Mamello Matikinca, the chief economist at FNB, said she estimated the third-quarter print would be as high as 3percent.
“The primary sector of agriculture and mining has performed well and should provide good growth impetus, despite weakness in manufacturing, construction and electricity demand,” Matikinca said.
Also expected this week is the mining production data and the South African Chamber of Commerce and Industry business confidence number for November.