Photo by: Duane Daws
June data for banking and financial services organisation HSBC’s latest Purchasing Managers’ Index (PMI) for South Africa points to a further deterioration in operating conditions at South African private-sector companies, with the headline PMI falling fractionally from 49.7 in May to 49.5.
“The June reading marked the third successive monthly contraction, but the pace of decline remained marginal,” said HSBC in a statement on Thursday.
HSBC economist David Faulkner said the domestic demand indicators – output and new orders – had been below 50 for four successive months with the pace of contraction accelerating in June.
The weaker headline index partly reflected further declines in both output and new orders, with the rates of contraction accelerating slightly since the previous month, with companies reporting that the mining strikes remained one of the main factors weighing on private-sector demand.
Faulkner stated that low confidence levels were likely to weigh on business and consumer behaviour for some time to come.
Data suggested that the drop in total new orders was broad-based, with new export business also declining compared with May. “The rate at which foreign demand fell was the sharpest in nearly two years, with some panellists commenting on increased competition,” noted HSBC.
Faulkner added that the marked contraction in export orders highlighted that external demand continued to weigh on export performance, keeping pressure on South Africa’s trade balance in the second quarter.
Meanwhile, inflationary pressures intensified in June, with both input and output prices increasing at steeper rates. The rise in overall input costs was largely driven by higher purchasing prices, while staff costs rose to the weakest extent in the series' history.
“[This suggests] that consumer and producer price pressures will remain elevated and continue to influence monetary policy decisions by the Reserve Bank,” said Faulkner, adding that, in spite of falling demand, employment crept higher in June. The vast majority of companies, however, were leaving staffing levels unchanged in the current uncertain economic climate.
The rate of job creation picked up slightly since May, which some panellists attributed to expectations of future activity growth, stretching the current spell of employment growth to five months.
Meanwhile, backlogs of work fell at one of the sharpest rates since data collection began three years ago, said HSBC.
Following the trend observed throughout most of the series' history, vendor performance deteriorated during June, with some survey participants citing raw material shortages and the mining strikes.
Purchasing activity also fell in June, with the rate of contraction the sharpest in one year, HSBC said, while lower new order intakes were mentioned as the primary factor behind the reduction. Finally, stocks of purchases fell for the second time in three months.