The latest Purchasing Manager’s Index (PMI) data from Standard Bank and IHS Markit registered 50 index points, indicating that overall business conditions in the South African private sector were unchanged in May.
The latest survey data signalled that greater volumes of new orders and rising employment contrasted with a contraction in business activity.
Elsewhere, however, purchasing activity rose for the first time in three months as new business increased; however, cost pressures continued during May, fueling a sustained rise in output prices, the index said.
“That said, both cost burdens and average selling prices rose to a lesser extent than in April.”
A contraction in output, however, weighed on the overall PMI, but this, Standard Bank says, was offset by increases in new orders, stock levels and employment, as well as increases in delivery times.
Business activity, meanwhile, contracted for the second month in succession during May.
Those surveyed mentioned that product shortages and weaker market conditions were factors that were driving the decline.
However, the pace of decrease was modest, having slowed from April.
On a more positive note, the PMI indicated that South African private firms continued to win new business during May, although at a slower pace. Evidence suggested that domestic orders drove demand as exports remained in contraction territory, the index pointed out.
Workforce numbers during May rose for the fifth month running, the index stated. However, it noted that as was the case with new orders, job creation was fractional and the slowest in the current sequence of employment growth.
The index further highlighted that supplier delivery times lengthened in the middle of the second quarter, though the extent to which vendor performance deteriorated was only fractional.
On the price front, the index noted that overall input costs rose in May, driven in part by the recent value-added tax (VAT) hike.
“Both higher staff costs and purchase prices also contributed to the overall increase. Despite easing from April, the rate of input price inflation in the South African private sector remained solid”.
Additionally, businesses reported a subsequent increase in average selling prices during May.
“As was the case with cost burdens, the rate of output price inflation eased from April,” the index authors said.
Further, commenting on May’s survey findings, Standard Bank economist Thanda Sithole said the economy-wide PMI jumped to 51.4 in February this year following positive political developments that emerged from the African National Congress’ December 2017 conference.
However, Sithole said that, since then, the PMI has been gradually moderating each month indicating a modest slowdown in the rate at which business conditions have been improving.
“This will likely be reflected in 2018’s first quarter gross domestic product (GDP) numbers, in which we expect a contracted 0.4% quarter-on-quarter”.
Nonetheless, Sithole noted that the PMI, together with the growth forecast for the first quarter of the year, does not alter Standard Bank’s GDP growth forecast of 1.8% in 2018 and 2.2% in 2019.
“In our view, the PMI will, during the remainder of 2018, largely show signs of improving domestic conditions,” Sithole noted.
In order words, domestic business conditions should be better this year than in 2017, aided by Standard Bank’s expectation of a continued momentum in consumption expenditure.
Several factors, such as the ongoing debate on land expropriation, elevated international oil prices and a volatile rand, remain key risks to the PMI outlook, the company concluded.