The seasonally adjusted Absa Purchasing Managers’ Index (PMI) improved somewhat in August, rising by 2.4 points to 49.7 – just below the key 50-point mark.

The increase in the headline PMI was driven by the business activity index, which jumped by almost 12 points to 50.

This follows a large decline of almost 11 points in July.

“Although the magnitude of the rise in business activity gives an impression of some strength here, at 50, the index is pointing to flat month-on-month manufacturing output growth in August,” Absa points out.

It notes that, albeit not nearly to the same extent, the new sales orders index was also higher in August.

Even so, this index remained well below the level of 50 that separates expansion from decline, Absa says.

It adds that this continued to reflect subdued demand for local manufactured goods.

Absa highlights another notable PMI subcomponent as the supplier delivery index. This index, which is inverted to show an increase when delivery lead times are longer, increased further in August to lift the headline PMI.

“In the pre-Covid-19 environment, longer lead times were normally associated with stronger demand conditions in the factory sector.

“However, the further lengthening of delivery times in August followed a significant jump during July, when orders probably took longer to arrive amid disruptions linked to the torching of several trucks on the N3 transport corridor,” Absa posits.

It adds that, in August, the week-long taxi strike in Cape Town, which led to significant worker absenteeism across sectors, most likely explains the further lengthening of delivery times.

Absa avers that because the most likely reason for longer delivery times in August was a supply-side constraint as opposed to higher demand, the headline PMI was, at least to some degree, again kept afloat artificially.

It highlights another noteworthy development in August as a marginal rise in the PMI price index after a large decline in July.

With a substantial diesel price hike of more than R2.50/ℓ looming in early September, this indicator has some scope to rise further in the near term, Absa notes. 

After hovering between 47 and 48 in June and July, the PMI employment index sagged by 4.5 points to a low 42.8 in August. Absa avers that this does not bode well for the official employment stats in the factory sector.

INDEXES

Off a low base, the business activity index increased notably in August. Even so, at 50, the index is pointing to flat month-on-month growth in manufacturing production, Absa reiterates.

The company says it remains unclear exactly what drove the large decline in this index during July.

It proposes that, besides the ongoing impact of loadshedding, in terms of specific constraints on output in August, the week-long taxi strike in the Western Cape could be a factor.

Anecdotal evidence suggests that several manufacturing facilities were impacted by worker absenteeism associated with the strike, it notes.

The new sales orders index saw a marginal improvement in August but remained well below the key level of 50.

This suggests that underlying demand for local manufactured goods was still under pressure. An improvement in export sales during the month helps to explain the modest increase in this index, Absa outlines.

After hovering between 47 and 49 points of late, the employment index took a leg down in August. According to Statistics South Africa’s Quarterly Labour Force Survey, formal employment in the manufacturing sector declined by 53 000 quarter-on-quarter in the second quarter.

The PMI figures for July and August do not instill confidence that there will be a recovery in the factory sector job market during the third quarter, Absa warns.

At 48.3, the inventories index remained largely unchanged for a third consecutive month during August.

Following a notable gain in July, the supplier deliveries index rose further in August. This index is inverted in the headline PMI index calculation, implying that longer supplier delivery (lead) times boost the headline PMI.

Following large declines in the previous two months, the purchasing price index rose somewhat in August.

Absa suggests that this may reflect the just more than 70c/ℓ diesel price increase at the start of the month.