Financial services provider Absa’s seasonally-adjusted Purchasing Managers’ Index (PMI) rose for a third month to reach 53.1 index points in December, slightly up from the 52.6 points recorded in November.

However, Absa notes that while the PMI is positive, underlying factors are mixed – the most concerning of which was the business activity index, which deteriorated further in December to 45.2 – down from 49.5 in November and 48.8 in October.

In addition, the company points out that the business activity index failed to rise above the neutral 50-point mark throughout 2022.

This, Absa says, is indicative of weak underlying momentum in the sector, while sustained and intense loadshedding during December was likely a key negative contributor to the sector.

More encouraging was the sustained demand growth signalled by the new sales orders index, which reached 53.8 in December, slightly down from 54.3 in November, but up from 46.4 in October.

A further positive development was a rise in the expected business conditions index, with purchasing managers showing optimism about business conditions in six months’ time, with the index rising to 54.9 in December from 51.7 in November.

The expectation that the peak in cost pressure is for now behind manufacturers may have underpinned the more optimistic outlook.

Absa’s employment index was 8.6 points higher, at 54.3 in December, showing growth from a level of 45.7 in November and 41.5 in October.

However, Absa notes that while any indication of an increase in staffing levels is encouraging, previous temporary increases in the index do not correspond with sustained manufacturing employment growth in the official data.

Absa’s purchasing price index declined to its lowest level since late 2019 and is now well below its long-term average reading, with the, on average, significantly lower Brent crude oil price and slightly stronger rand exchange rate relative to November likely being the driver of cost pressure.

As for inventories, Absa recorded a decrease to 46.3 in December, down from 51.9 in November and 51.3 in October.

Of concern was the renewed uptick in the supplier deliveries index, which reached 65.8 in December, up from 61.7 in November and 61.9 in October.

With new sales orders decreasing somewhat, although remaining in positive terrain, Absa says this could point to renewed friction in supply chains, rather than robust demand causing a lengthening in delivery times.

This, the company says, is because the index is inverted, with slower deliveries pushing the index higher. As such, Absa says there is a likelihood of further near-term global supply chain disruptions stemming from the rapid reopening of the Chinese economy accompanied by surging Covid-19 infections.

Further, Absa notes that the steep downturn in the PMI price index of 64.4 at the end of 2022 bodes well for a further moderation in actual producer price inflation in the first months of this year. This index was at 75.9 in November and 75.4 in October.