The Absa Purchasing Managers’ Index (PMI) rose to a solid 60.9 index points in October, up from a revised 58.5 index points in September.

The further increase at the start of the fourth quarter is an encouraging sign that the manufacturing sector continues to recover following a record contraction in April, says financial services provider Absa.

It notes that some respondent comments suggest that demand and capacity are nearing pre-Covid-19 levels.

However, other respondents reported that they continue to struggle as demand for their products remains well below pre-lockdown levels.

Renewed restrictions on activity in Europe amid a resurgence of Covid-19 cases might weigh on future demand for South African exports and may stir up concerns about a possible second wave in South Africa with a possible move back to a stricter lockdown level.

This could explain why the index tracking expected business conditions in six months’ time moved slightly lower in October, says Absa.

The index declined to 56.7 index points from a recent high of 64.5 reached in September.

The increase in the headline PMI was supported by the new sales orders and business activity indices remaining high, albeit that both ticked down slightly compared with the previous month.

A big driver of the additional increase in the headline PMI was the inventories index, which surged higher in October. The index rose to the highest level in about 13 years.

This is encouraging, after initially lagging the recovery in activity; the employment index rose for a fifth consecutive month, acclaims Absa.

At 49.1 index points, close to the neutral 50-point mark, it suggests that employment levels are stabilising after signalling significant job losses in the second and third quarter of the year, it says.

Despite the rand exchange rate and Brent crude oil price – important drivers of input costs for manufacturers – remaining more or less unchanged compared to the previous month, the purchasing price index somewhat surprisingly ticked up in October, Absa notes.