File image: IOL
File image: IOL
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File image

JOHANNESBURG - THE PURCHASING Managers Index (PMI) yesterday fell to 49.8points in August from 50.1points in July.

Data released by Standard Bank and Markit showed that the PMI signalled a broad stagnation in overall private sector operating conditions midway through the third quarter of the year, marking the second-lowest point in the past 12 months and below the six-year long-run survey which averaged 50.7points.

Standard Bank economist Thanda Sithole said policy uncertainty and political turmoil would keep the private sector PMI volatile in the near term.

Sithole said the decline was largely driven by output and new orders sub-components. “Output fell to 48.2points from 48.5points and has been in contraction for five successive months,” Sithole said.

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Ticked up

“New orders, a proxy for demand, dropped to 48.9points from 50.8points. Surprisingly, the employment index ticked up, despite stubbornly high unemployment rate and looming job losses in the mining sector. Stock of purchases index also ticked up to 50.6points from 50.4points, reflecting inventory restocking.”

On quarterly basis, the PMI remained in contractionary terrain for three consecutive months, indicating a continued deterioration in domestic operating business conditions. It also registered its first drop in wages in the six-year survey history.

Standard Bank said new business also declined for the second time in three months at the fastest rate since April 2016, despite a rise in new export sales for the first time in ten months. Private sector employment in South Africa, however, continued to expand in August, strengthening the fastest since January, contributing to a third successive decline in outstanding business.

Modest recovery

Kamilla Kaplan, an economist at Investec, said the manufacturing sector staged a modest recovery in the second quarter after three consecutive contractions.

“As the contributions to gross domestic product (GDP) measure value added rather than actual production and sales, the smaller contributions likely reflect limited pricing power at the manufacturing and retail level, highlighting the weak demand conditions,” Kaplan said.

Last week, Absa said its PMI remained below the 50-point cut-off between contraction and expansion with the forward-looking aspect falling below 50 points for the first time since February last year.

Sithole said prices charged for goods and services rose at the fastest rate since January. “Input price inflation in the South African private sector sharpened to a seven-month high in August,” Sithole said.

“This mainly reflected a faster rate of purchase price inflation, linked to higher steel and fuel costs.”