Manufacturing confidence at 3-year high – survey

15th March 2011 By: Petronel Smit

Manufacturing business confidence strengthened in the first quarter of 2011, with domestic sales and order volumes reaching their highest levels since the fourth quarter of 2007, according to the Bureau for Economic Research’s (BER’s) latest manufacturing survey.

The survey, released on Tuesday, reported that manufacturing business confidence increased by 10 index points to 51, on the back of a continued improvement in demand conditions.

The BER reported that production also improved during the quarter, in line with the pick-up in demand. However, there was a decline in
the stocks of raw materials and finished goods.

Nkanyiso Hlongwa, an economist at the BER at Stellenbosch University, said the decline in stocks was possibly driven by the better-than-expected demand reported by the manufacturers, suggesting that manufacturers may have to scale up production further.

However, the survey also revealed cost pressures building up in the manufacturing sector. The purchasing price of raw materials accelerated notably, leading to a rise in average total cost inflation.

“The increase in raw material prices may be reflective of the recent surge in global commodity prices,” said Hlongwa.

Meanwhile, export sales declined, but export order sales improved notably, which may signal a more positive outlook for exporters.

Domestic and export selling prices increased during the period surveyed, with the net majority reporting an acceleration in domestic selling price inflation. Manufacturers also reported a rise in export selling price inflation.

“The results indicate that manufacturers are passing on the higher costs to the domestic and export markets. The rise in domestic selling price inflation may lead to upside cost pressures to producer price inflation,” said Hlongwa.

General business conditions improved during the survey and were expected to improve more over the next 12 months. Consequently, manufacturers expect to increase investment over the upcoming 12 months.