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Signalling the end of a five-month period of contraction, the HSBC South Africa Purchasing Managers Index (PMI) edged back into expansionary territory in August, moving to 51.1 points after having dropped to a record low 46.4 in a strike-affected July.
The index, based on data compiled from monthly replies to questionnaires sent to executives from around 400 private sector companies, further showed that South African private sector output stabilised in August, attributed by the bulk of respondents to the end of a strike in the metals sector.
While the amount of new work placed with local companies increased for the first time in six months in August, the rate of growth in new work was marginal overall.
“Moreover, the rise in new business was driven by the domestic market, as new export orders fell for a third successive month,” read the report.
In line with stronger trends for output and new orders, companies hired additional workers in August, resulting in the fastest pace of monthly job creation since March.
Meanwhile, backlogs of work accumulated for the first time since February, albeit marginally overall.
Wage inflation hit a two-year high in August, linked largely by respondents to salary increases owing to a strike by members of the National Union of Metalworkers of South Africa in the engineering and manufacturing sectors.
“Purchase prices also rose at a faster pace, as some companies faced higher prices for some raw materials. Consequently, overall input price inflation accelerated on the previous month, but remained below the long-run average,” the bank said.
In response to higher input costs, companies raised their selling prices in August.
Higher orders, meanwhile, led to the first rise in buying activity since March, while stocks of purchases also rose during the month.
Suppliers’ delivery times lengthened further, albeit at a slower pace than that seen in July.
Commenting on the survey, HSBC economist David Faulkner said the PMI indicated renewed private sector expansion.
“Demand conditions improved substantially over the month, but remain relatively weak. While output stabilised, external demand continues to weigh on the economy, as indicated by a contraction in new export orders.
“While the end of strike activity should support stronger economic activity in the coming months, the inflationary impact of high wage settlements is evident in the PMI readings,” he noted.