PMI suggests manufacturing output contracted at the start of Q4

01 November 2012

According to Andre Coetzee Managing Director of the Chartered Institute of Purchasing and Supply Africa (CIPS), "The seasonally adjusted Kagiso PMI declined by another 1.2 points to 47.1 in October from an upwardly revised 48.3  during September, to reach the lowest level since July 2011". After rising to 51.1 during July 2012, the PMI has now declined for three consecutive months. The index averaged just above 50 in Q3 and the latest reading suggests a notable loss in the manufacturing sector's growth momentum.

Coetzee noted that, "The two largest weighted sub-components of the PMI, i.e. business activity and new sales orders, fully accounted for the decline of the headline index. Both indices lost 3 points with business activity falling to 43.2 index points. The level of the index suggests a notable decline in manufacturing production at the start of the fourth quarter. The new sales orders index measured 45.3 in October, which is indicative of soft demand for factory sector goods."

Andre Coetzee further mentioned that, "The weak performance of these two key indices, in all likelihood, not only reflects subdued manufacturing output trends in SA's key trading partners, but may also be a function of domestic constraints". Initial indications are that the PMIs in China and the EU, SA's key export markets, remained below the all-important 50 mark in October. "On the local front, the prolonged strikes in the mining sector through October and isolated industrial action in the vehicle manufacturing sector may have contributed to the weakness in the SA PMI during the month.", Coetzee said.

According to the PMI price index, the rise in factory sector input costs continued to accelerate. The index gained 1.3 points to 77.1. The employment trends in the manufacturing sector were again not inspiring as the PMI employment index continued to hover below the 50 line.

Coetzee concluded, "Of interest is that, for the second month in a row, purchasing managers were more optimistic about the future. The index measuring expected business conditions in six months increased by 1.6 points to 57.1. However, the more upbeat sentiment was not corroborated by the PMI leading indicator, which fell back further below 1 to 0.91." The leading indicator measures the ratio between new sales orders and inventories - any number below 1 indicates that inventories exceed the demand for manufactured goods, which normally does not bode well for factory sector production.

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