The Kagiso Purchasing Managers Index (PMI) rose for a second consecutive month to 37,9 points on a seasonally adjusted basis in June, compared with 37,3 points in May.

The index, which was a key measure of manufacturing activity, had, in May, shown its first increase since January with sponsors Kagiso Securities saying that the rise could offer a “glimmer of hope” for the South African economy.

However, Kagiso Securities head of fixed income securities Andre Coetzee said that, while the PMI data for May and June indicated that the worst of the “factory recession” might be over, the index was still significantly below the positive level of 50 index points.

“[This] hint[s] that positive growth is not on the cards anytime soon. Indeed, the average PMI for the second quarter of 2009 was 36,9 index points, down from 38,6 index points during the first quarter,” he noted.

The PMI has remained below the 50-point level since May last year.

Meanwhile, output volumes had continued to decline at a slower pace in June, with the seasonally adjusted business activity improving to 37,9 points, compared with 35,1 points in May, while the seasonally adjusted sales orders indices improved to 38,2 points, compared with 35,7 points in May.

“Despite the slowdown in the contraction of output volumes, near-term demand indicators have disappointed by losing much of the ground recovered in May,” commented Kagiso Securities head of fixed income securities Andre Coetzee.

Further, the backlog of sales orders fell to 23,9 points, down from 27,2 points the month before, while the seasonally adjusted inventories index dropped to 29,1 points, down from 35,4 points in May, despite relatively flat and stable purchasing commitments.

The price index increased to 51,7 points, up from 45,6 points the month before, which indicated that input prices had increased during June, said Kagiso.

“[This] raises doubts about the sustainability of May’s sharp input price easing. The oil price, on average, rose by more than $10/bl in June, which could help to explain the higher input costs,” said Coetzee.

Kagiso also reported that the seasonally adjusted employment index had stayed constant at an “extremely low” level of 36,9 points in June, adding that this “point[ed] towards a continued decline in manufacturing sector employment”.

Meanwhile, despite the absence of a recovery in near-term demand indicators and with continued weakness throughout the manufacturing sector, a majority of purchasing managers still expected business conditions to improve in six months time, said Kagiso.

Business confidence among purchasing managers seemed to have started improving in May, with Kagiso reporting that the majority of purchasing managers expected business conditions to improve in six months time, with Coetzee saying that purchasing managers had not been this positive since September 2008.

In June, the Bureau for Economic Research, which compiled the PMI, at the time said that while the manufacturing sector had remained in “dire straits” during the second quarter of the year, the worst of the contraction could be over.

South Africa’s manufacturing output declined by a record 21,6% year-on-year in April, recording its lowest output since January 2004, in the latest official data made available by Statistics South Africa.