The Standard Bank South Africa Purchasing Managers’ Index (PMI) in June recorded its sharpest fall in business activity, since April 2016, falling below the neutral 50-point mark to 49.
The PMI had stood at 50.2 in May.
Standard Bank on Wednesday said this drop signalled a slight deterioration in overall private sector operating conditions, and halted a nine-month sequence of improvement.
Standard Bank FX strategist Shireen Darmalingam noted that this was the sixth consecutive monthly decline in the index. “Worryingly, four subcomponents of the index made negative contributions in June.”
The main findings were that the negative influences on the PMI resulted from declines in output, new orders, employment and stocks of purchases, with only suppliers’ delivery times having a positive contribution on the headline figure.
Private sector business activity in South Africa also declined for the third successive month in June. Moreover, the rate of contraction accelerated the fastest since April 2016.
The main influence on the drop in overall activity was a reduction in the volume of incoming new business for the first time since October 2016.
New export orders declined for the eighth consecutive month. Spare capacity was evident in the South African private sector in June, as the level of outstanding business declined at the fastest rate since June 2016.
With a lack of incoming new work, firms reduced their staffing levels on average for the first time in a year. Purchasing operations were scaled back in June as the volume of incoming new business declined.
Input buying in the private sector also fell for the second month running and at a slightly faster rate than in May. Subsequently, stocks of purchases declined for the second month in a row.
Despite reduced pressure on suppliers, their delivery times lengthened to the greatest extent since March 2016.
Further, inflationary pressures in the private sector remained weak in June, despite strengthening slightly compared with May. Input and output prices rose at the fastest rates in four and five months respectively, albeit still among the weakest pace over the survey history.
Darmalingam added that she expected the index to remain pressured as the local economy battles with low business confidence and slow economic activity as reflected in the recent recessionary data.