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Absa PMI dips slightly to 52.2 in March

3rd April 2017

By: Anine Kilian

Contributing Editor Online

     

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The seasonally adjusted Absa Purchasing Managers’ Index (PMI) managed to hold on to recent gains in March, despite dipping slightly lower to 52.2 from 52.5 in February, thereby remaining above the neutral 50-point mark for a third straight month.

This was supported by all five major subcomponents coming in above 50 points for the first time since May 2012.

The average reading for the first quarter of 2017 was also well above the level recorded in the fourth quarter of 2016.

This suggests that actual output is likely to pick up from the quarter-on-quarter contraction recorded in the fourth quarter.

The business activity index rose for a third straight month, supported by a sustained improvement in new sales orders.

The orders index stayed above the neutral 50-point mark for a fifth month.
In addition, the employment index edged up above the neutral 50-point mark for the first time since August 2016.

However, the apparent improvement in output will need to be sustained for this to translate into actual job growth.

The purchasing price index moved down further in March, declining to 63.5 from 68 in February.

This was likely driven by the sustained strengthening trend in the rand exchange rate.

Most of the survey responses came in before President Jacob Zuma recalled former Finance Minister Pravin Gordhan and his deputy Mcebisi Jonas from an overseas investor roadshow and fired them, which led to renewed rand weakness.

This also means that the outcome of the index measuring expected business conditions in six months’ time did not reflect the possible future impact of recent political developments.

The index edged up to 68 from 67.8 in February.

Manufacturers may anticipate that the apparent improvement in global growth will filter through to higher exports, while domestic demand may benefit from a recovery in the agricultural sector. 

The PMI leading indicator is just above one due to new sales orders coming in slightly higher than inventories, which usually bodes well for output growth.

The Steel and Engineering Industries Federation of Southern Africa (Seifsa), meanwhile, welcomed the signs of a recovery for the manufacturing sector, which would bode well for the metals and engineering sector.

“Notwithstanding the minor pull back in the PMI in March, the underlying fundamentals point to recovery in the manufacturing sector, much in line with our view for the metals and engineering sector,” Seifsa senior economist Tafadzwa Chibanguza noted.  

Analysing the data, Chibanguza said the fact that the employment index has edged up and breached the 50 index-point mark is definitely a positive sign.

Such an improvement has not been seen since August 2016.

“This is an important indication which confirms the strength of the underlying and firming trend. Companies generally need a strong conviction in the strength of the underlying trend in order to start employing more people,” he said. 

The index measuring prices decreased comfortably by 6.6% between February and March, continuing the decline that has been observed in the first quarter of 2017.

Chibanguza attributed this to the stronger rand, describing it as a welcomed move for profit margins.

“Unfortunately, however, there is no doubt that the political events that took place at the end of last week, primarily the firing of Gordhan which strongly weakened the rand, will reverse the gains made in this price index. A weaker rand increases price inflation and chokes margins,” he said.   

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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