The Kagiso PMI improves but manufacturing sector remains under pressure

03 December 2012

While the seasonally adjusted Kagiso Purchasing Managers Index (PMI) increased by 2.4 points in November to reach a level of 49.5, it remains in contraction for the third consecutive month.  This places the average PMI reading for the first two months of the fourth quarter at 48.3, lower than the average level achieved in the third quarter (50.1) 

According to Abdul Davids, Head of Research at Kagiso Asset Management, the weak PMI data is in line with the trends currently at play in some of our key trading partners. "PMI readings in the Eurozone, the leading foreign market for our locally-produced goods, remains in contraction," he says. "China, however, is showing some improvement as its November PMI reading rose to a 13-month peak of 50.4. In addition, the declining trend in the average PMI suggests that the manufacturing sector's contribution to fourth quarter GDP could be lower than the third quarter."

The Business Activity Index gained 2.7 points to reach 45.9. Davids points out that while this is an improvement, the level of the index continues to suggest that output remains under pressure. "Similarly, while New Sales Orders rose by 2.4 points, its level of 47.7 points to persistently weak demand," he says. 

Input costs continued accelerate, with the Price Index recording its fourth consecutive increase to 79.5, the highest level since January 2012. "The rise in costs over the last few months is largely due to the weaker rand, which averaged R8.78/US$ in November compared to R8.65US$ in October," explains Davids.

Following gains in September and October, the Expected Business Conditions Index declined significantly by nearly 5 points. In addition, the PMI Leading Indicator remained below 1, indicating that supply continues to outstrip demand.  

On a more positive note, the Employment Index broke through the 50-point mark to reach 52, its highest level this year. However, Davids cautions against extrapolation as recent research shows that executives in the manufacturing factory sector are pessimistic about employment trends and expect a further deterioration in the job market during the first quarter of 2013. 

Download: pmi_dec_2012_copy1.pdf