Photo by: Duane Daws
The seasonally adjusted Kagiso Purchasing Managers’ Index (PMI) remained above the key 50-point mark for the fourth consecutive month in July when it increased marginally by 0.6 points to 52.2, but challenging market conditions persisted.
Kagiso Asset Management head of research Abdul Davids said the local PMI was in line with trends in the eurozone and US, where recent flash PMI data had been improving to above the key 50-point level. However, China’s PMI was in decline and was currently below 50.
He added that the improvement in the new sales orders index by one point to 55.0 during July, suggested that demand for manufactured goods had been slowly improving in recent months and was likely owing to the weaker rand, which made locally produced goods relatively more competitive in the international market.
The employment index gained 2.6 points to reach 47.5. Despite this, the latest Quarterly Labour Force Survey showed that the manufacturing sector shed nearly 18 000 jobs during the second quarter, which Davids attributed to manufacturers’ reluctance to increase production capacity in the absence of a notable, sustained improvement in demand.
He noted that although the business activity index, which was the second-largest weighted index, was still in positive territory after losing 0.4 points to reach 51.8, it suggested that manufacturing output remained under pressure.
Davids further pointed out that input costs accelerated in July, with the price index increasing by 5.8 points to 88.0 – a level last reached in March 2011.
“This steep increase is due to a weak rand and relatively higher oil prices during the month and the 6% increase in retail fuel prices. The upward price pressure faced by manufacturers for most of this year was mainly due to higher transport, electricity and labour costs, and manufacturers continue to face significant input cost pressures,” he added.
The index measuring expected business conditions in six months’ time increased by 0.2 points to 53. This positive sentiment was supported by the PMI leading indicator moving back above one, suggesting that inventory levels were now low relative to demand.
While this usually bodes well for future manufacturing production, Davids cautioned that the operating environment remained challenging with muted demand and relatively high input prices.
Meanwhile, Manufacturing Circle executive director Coenraad Bezuidenhout said that the latest PMI figures showed that the manufacturing industry was consolidating on the back of a more competitive rand, which helped to alleviate margin squeeze, promote investment in efficiency and maintain employment.
“While it differs from manufacturing categories, there are no warnings signs at present that drawbacks of the weaker rand is outweighing the benefits. Analysis to this effect is at odds with what is at present being relayed by broader manufacturing,” he said.
On the downside, Bezuidenhout highlighted administered price increases and security of supply, particularly energy and water, as having impacted negatively on manufacturing price inflation.
“Further downside risks remain in the teetering global recovery, the weakening momentum of domestic spending and the negative impact that protracted and violent strikes in upstream sectors such as agriculture and mining could have. In addition, there are also significant concerns in respect of our trade relationships with established markets such as the EU and the US, where there is still untapped potential,” he stated.