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The seasonally adjusted Barclays Purchasing Managers’ Index (PMI) rose to 50.5 index points in March, edging above the neutral 50-point mark for the first time since July 2015.
While the improvement in March was encouraging, the average reading of 47 for the first quarter was only 1.4 points better than the average recorded in the fourth quarter of 2015.
The business activity index remained below 50 points at 47.7 in March, suggesting that output likely stayed under pressure. Indeed, after the sharp monthly contraction in January’s production figures as measured by Statistics South Africa, the sector could contract again on a quarter-on-quarter basis in the first quarter of 2016, said Barclays.
As in February, a positive development was the broad-based improvement in the PMI with four of the five major subcomponents ticking up in March. The biggest driver of the increase in the headline PMI was the 5.2-point rise in the new sales orders index, which rose to 53.1 in March.
Barclays stated that this meant that manufacturers could have found some benefit from import substitution or a pick-up in export demand on the back of the sustained weaker rand exchange rate.
“However, the recent improvement will have to be maintained before activity and employment also increase going forward,” it added.
Even though the domestic demand environment remained challenging, purchasing managers were more upbeat about expected business conditions, with the index measuring expected business conditions in six months’ time having risen from 44.8 to 51.1 in March.
“The PMI leading indicator also edged further above one in March. This means that new sales orders outstrip inventories, which, if sustained, could support output in coming months.
The price index remained elevated, albeit that the index declined somewhat to 87.8 from 90.7 in February. The average for the first quarter of 2016 was the highest quarterly average in two years.
“With the rand remaining weak and a hefty fuel price increase on the cards for next week, manufacturers continue to face significant upward pressure on costs,” stated Barclays.