Financial services firm Absa's Purchasing Managers’ Index (PMI) again declined in September to 48.2 points from 52.1 in August, as the business activity subindex plummeted to 38.5 points, from 50.6 in August, with some respondents citing electricity supply disruptions as the cause.

This brings the average of the PMI to 49.3 for the third quarter.

At 43, the average for the business activity index in the third quarter is also well below the neutral 50-point mark, as well as lower than the second-quarter average of 45. This underscores the serious constraint that load-shedding, at elevated stages, puts on activity growth, the PMI report highlights.

"The business activity index has seesawed with changes in the intensity of load-shedding over the past couple of months, rising from 39.8 in July. With more disruptions in September than in August, the index once again fell sharply. However, the index is based on a question of how activity changed relative to the previous month," the report adds.

Further, even if load-shedding does not have a direct impact on curtailing output, some respondents flagged that load-shedding weighs on demand for their products owing to lower activity elsewhere.

In terms of demand, the new sales orders index fell sharply to 40 in September from 48.6 in August. In addition to subdued domestic demand, the weakening external environment, reflected in the fourth consecutive decline in the export index, likely also contributed to the decline in orders, the report adds.

Meanwhile, respondents also turned less optimistic about business conditions going forward. The index tracking expected business conditions in six months’ time fell back to 51.2 from 57.9 in August and an average of 61.5 in the first six months of the year.

Concerns about the persistence of load-shedding, the health of the global economy and perhaps the lingering impacts of higher borrowing costs likely affected sentiment, the PMI report states.

"Overall, the PMI results do not bode well for a strong recovery in actual manufacturing production from a bleak second quarter," the PMI states.

However, a normalisation in conditions from the temporary shocks weighing on output in the second quarter, particularly in the automotive production value chain, should aid production. This means that the sector is unlikely to perform as poorly as in the second quarter, but that a strong rebound also seems unlikely.

Additionally, manufacturing production should post modest year-on-year growth in the third quarter after output was negatively affected by relatively strict lockdown restrictions and the looting and civil unrest in July 2021, the report highlights.

Meanwhile, the purchasing price index continued to signal that cost pressures are cooling.

"Encouragingly, the purchasing price index declined for a third consecutive month to 79 in September. Lower fuel prices at the start of the month, with more relief expected this week amid lower Brent crude oil prices, could explain part of the deceleration in cost pressure," the PMI notes.

Further, Statistics South Africa’s official producer price inflation figure for final manufactured goods also ticked down in August, with the PMI price index pointing to a further deceleration in September. This suggests that pipeline price pressure has probably peaked, although it remains at elevated levels.

The recent weakness of the rand exchange rate compared to the US dollar poses the biggest risk to a continuation of this encouraging trend over the near term, the Absa PMI adds.

Meanwhile, the supplier deliveries index moved up further to 63 in September from 60 in August. With demand weakening from August, and thus not a likely driver of this movement, renewed supply chain friction seems to be the cause of the deterioration in supplier delivery times. The index is inverted, hence slower deliveries push up the index, the PMI adds.