PMI rises as demand and operating conditions improve02 September 2013
The seasonally adjusted Kagiso Purchasing Managers’ Index (PMI) increased by 4.3 points to 56.5 in August. The index is now at its highest level since August 2007. According to Abdul Davids, Head of Research at Kagiso Asset Management, all of the major PMI sub-components improved, with the Business Activity and New Sales Orders indices making the largest contributions to the overall increase.
Following a minor pullback, the Business Activity Index increased sharply to reach 59.2 in August, indicating that pressure on manufacturing output may be abating. The New Sales Orders Index increased by 2.5 points to 57.5 in August, suggesting that the demand for manufactured goods has improved.
“Although conditions in the Eurozone are improving, they remain tough and the improvement in demand is therefore more locally driven,” says Davids. “We may be seeing the first signs of import replacement as the weaker rand improve the competitiveness of locally-manufactured goods, versus more expensive imported goods. In addition, the sustained weakness in the currency has improved the global competitiveness of our exports of manufactured goods.”
The Employment Index surprised on the upside, increasing to 51.2 points from 47.5 in July. This is the first time since November 2012 that the index has been in expansion territory. But despite the improvement, Davids cautions that manufacturers remain reluctant to increase production capacity until sustained demand side improvements emerge.
The Price Index remained relatively stable at a high level of 87.2, indicating persistent input cost pressures. “The upward price pressure faced by manufacturers for most of this year is mainly due to higher fuel, electricity and labour costs and the sharp increase in PPI from 5.4% in May to 6.6% y-o-y in July corroborates this,” says Davids.According to Davids, the latest PMI results show that both demand and operating conditions within the SA manufacturing sector have improved notably. In addition, the outlook for the sector also looking more positive, with the index measuring expected business conditions in six months’ time increasing by 2.8 points to 55.8.