The seasonally adjusted Kagiso Purchasing Managers Index (PMI) increased by 1.2 points to 51.6 in June, marking its third consecutive month above the key 50-point mark, with all the major sub- indices showing modest improvement, except for the employment subindex, which continued to decline.

The PMI stood at 50.5 and 50.4, in April and March respectively.

The inventory index continued to improve in June, increasing to 55, following sharp destocking in April. However, manufacturers appeared to be cautious of building their inventories too quickly, as global and local economic conditions remained uncertain.

The price index remained largely unchanged, declining by 0.2 points to 82.2 in June. This relatively high level indicated that manufacturers faced sustained input cost pressure, while a significantly weaker rand might also have contributed to high input costs in the month.

“With the rand trading above R10/$ for most of the month, imported materials used in the manufacturing process would have been more expensive to acquire,” Kagiso Asset Manage-ment research head Abdul Davids said in a statement.

He added that while the latest PMI results showed that conditions improved marginally, the outlook for the manufacturing sector was expected to remain challenging in an environment of muted demand and relatively high input prices.

Further, the business activity index regained all May’s losses to reach 52.2 points in June. However, Davids pointed out that the level of the index suggested that production remained under pressure.

The new sales orders index increased notably by 2.9 points to 54.0 in June, indicating that demand for manufactured goods improved somewhat.

Davids stated that tentative indications of an improvement in the US economy could have con- tributed to the increased demand for manufactured goods. However, he pointed out that a sustained recovery in demand depended on improvement in domestic product demand and better gross domestic growth prospects in the European Union and US economies.

Manufacturing Circle executive director Coenraad Bezuidenhout told Engineering News that the industry body had expected the June PMI to either remain the same as the preceding two months or improve slightly. “We think the improvement is just a further indication that manufacturing is indeed slowly consolidating, but not growing,” he said.

Bezuidenhout said the slightly higher average business activity index over the last three months, compared with the previous three months, was heartening.

“While the Bureau for Eco-nomic Research analysis sug- gested that this is due to an improved demand from America, we think that quite possibly government’s local procurement programme may also have something to do with it, signifying that it is getting some traction in the domestic market. We hope that the private sector will follow suit.”

Bezuidenhout stated the Manu-facturing Circle did not view the continuing drop in the employment subcomponent as being the start of a new trend, as employment and the outlook thereof had remained flat for some time, showing some month-on-month fluctuation.

“But there is a risk of mechanisation, because capital is quite cheap and there are a lot of issues with productivity and labour relations.”

Looking ahead, Bezuidenhout said demand in South Africa’s export markets was still quite soft and was not showing sustainable prospects of improving in the near term.

“That is why leveraging our local procurement programme and local purchasing of the private sector are such important aspects. We also need to work hard at improving our access to markets in South-East Asia and South America, especially now that we have a weaker rand to leverage,” he said.