Kagiso PMI rises in May as pressures ease somewhat
The seasonally adjusted Kagiso Purchasing Managers’ Index (PMI) recovered by 5.4 index points in May, as several pressures eased from April.
The recovery from the 11-month low of 45.4 in April to 50.8 index points in May lifted the index back above the neutral 50-point mark for the first time since January.
A significant driver of the PMI’s improvements was the 9.9 index-point recovery in the new sales orders index from 42.3 in April – the lowest level since August 2009 – to 52.2 in May, explained Bureau for Economic Research economist Lisette IJssel de Schepper.
Improvement in demand saw the business activity index make similar strides, rising from 40.6 in April to 49.6 in May.
“The significant gains suggest that the factors that held back the manufacturing sector in April were alleviated somewhat in May,” she said, citing several public holidays in April and the more frequent load-shedding in the late afternoons on working days and weekends.
“Further, the sustained weak level of the rand exchange rate, as well as improving growth prospects in Europe, could have supported manufacturers targeting the export markets,” she noted.
However, BNP Paribas Cadiz Securities economist Jeffrey Schultz believed that while the improvement was encouraging, it did not “herald a change” in the outlook of the strained manufacturing sector.
“Electricity supply cuts are likely to continue for the foreseeable future; global and domestic demand is likely to remain below par over the coming months; the potential for further strike activity in the coal and gold sector looms and manufacturing input costs look set to climb over the coming months. All of this is likely to keep the manufacturing sector’s contribution to 2015 growth soft at best,” he pointed out.
The price index increased for a third consecutive month from 69 in April to 73.2 in May as manufacturers experienced rising input costs.
“The fuel price increase in June, as well the electricity price hike scheduled for July, will keep upward pressure on costs going forward,” IJssel de Schepper added, noting that higher demand would have to be sustained for manufacturing production to recover strongly from the contraction recorded in the first quarter of 2015.
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