The seasonally adjusted Barclays Purchasing Managers’ Index (PMI) declined further below the neutral 50-point mark to 48.1 in October, from 49.9 index points in September.

The headline index remained stuck below 50 for a third consecutive month, suggesting that the manufacturing sector was struggling to gain traction amid broad-based weak demand.

Speaking to Engineering News Online in a telephone interview, Barclays economist Miyelani Maluleke noted that he had not expected much of an improvement month-on-month, but added that the decline was “really disappointing, particularly in an environment where organisations, such as the International Monetary Fund and the World Bank, revised their growth forecasts for South Africa to be a lot lower”.

The PMI weakness was attributed to a drop in the business activity index, which fell to 47.7 index points, the weakest level since April. This signaled a poor start to the fourth quarter, after the sector had (likely)? posted modest quarter-on-quarter growth in the third quarter. In line with the weak business activity levels, the employment index fell from 48.5 points  to 44.

“This is the most concerning subindex of the PMI data, as it tells us that the job picture in South Africa is not good at all. We do know that creating employment is a critical and urgent goal for the country’s economic policy, but the 4.5-point plunge marks the lowest since March this year.

“It has actually now been in contraction territory for 19 consecutive months. It indicates a serious challenge in the manufacturing sector to create employment,” Maluleke explained, adding that he did not see this subindex improving in the near future.

The new sales orders index also declined in October. At 50.5, the index was only just above the 50-point mark. Persisting weak demand might be the reason for output growth not accelerating, despite an alleviation of electricity and other supply-side disruptions. Manufacturers were (likely) also cautious to expand output in the absence of a sustained improvement in demand.

Maluleke said this reflected the country’s challenging demand environment: “The consumer is not in good shape, credit conditions are very tight and income growth is limited. They key point is that it is still relatively a good reading, but not enough to prompt manufacturers to raise their output.”

This was supported by the PMI leading indicator, which remained below one in October, as inventories outstripped demand,  suggesting that output was likely to remain under pressure.

“Broadly, the sector is really struggling to gain positive momentum and will continue to offer limited support to overall growth in the fourth quarter,” he added.

Encouragingly, the price index declined from 77.6 index points to 73.8. The slightly stronger rand exchange rate in October, particularly at the start of the month, might have alleviated some of the cost pressures for importers of intermediary and raw materials.

Another positive development was the increase in the index measuring expected business conditions in six month’s time. The index rose to 53.2 in October.

Meanwhile, BNP Paribas Cadiz Securities economist Jeffrey Schultz pointed out that the local index averaged 49.7 in the first ten months of the year and that stark pressures were being felt in the key production-led sectors of the economy.

“The outlook remains fraught with challenges. A weak domestic growth trajectory, coupled with ongoing evidence from the country’s key trading partner, China, that demand for key industrial metals – such as steel, iron-ore and precious metals – are faltering, all point to a less than sanguine outlook for local manufacturing activity over the medium term,” he said.