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Standard Bank South Africa’s Purchasing Managers Index (PMI) slipped into contractionary territory for the first time in six months in July, with the start of the third quarter signalling a deterioration in the health of the South African private sector.
The headline PMI fell from 50.9 in June to 49.3 in July, signalling an overall decline in business conditions in the South African private sector.
However, the extent to which the health of the sector deteriorated was only marginal.
The headline Standard Bank PMI is a composite single-figure indicator of changes in private sector business conditions. It is derived from indicators for new orders, output, employment, suppliers’ delivery times and stocks of purchases.
Any figure greater than 50 indicates overall improvement in conditions.
Contributing to the overall contraction was a fall in output during July. Firms noted that weaker demand was a key factor driving the decline, though a number also mentioned that product shortages and strikes hindered business activity.
Companies also reported a decline in the volume of new orders from both domestic and foreign sources, with anecdotal evidence linking this to a contraction in the customer base. That said, the pace of decrease was only modest, the PMI found.
Amid the decline in new orders, firms reduced their workforce numbers during July. The fall in staffing levels was linked by panel members to a period of retrenchment.
Purchasing activity, meanwhile, also slipped into contractionary territory at the start of the third quarter as new orders fell. As a result, stock levels declined, though to a lesser extent than in the previous month.
Elsewhere, rising fuel and commodity prices underpinned an increase in purchasing costs which, along with higher average staff pay, led to a rise in overall input prices. That said, the overall rate of cost inflation eased since June.
Firms, meanwhile, continued to pass on higher cost burdens, with output prices increasing from the previous month. However, in line with the trend in input costs, charges rose to a lesser extent than in June.