London-headquartered banking and financial services organisation HSBC’s South African Purchasing Managers’ Index (PMI) for December fell to a three-month low of 50.5 – down from November’s 11-month high of 51.6.

HSBC South Africa economist David Faulkner said on Monday that while the HSBC PMI remained in positive territory, the main downward contribution to the index emerged from broadly stagnant output levels.

However, while volume recovery was slow, local manufacturers were exhibiting confidence on pricing, Manufacturing Circle executive director Coenraad Bezuidenhout pointed out.

“The latest [HSBC] survey results point to a further improvement in operating conditions in South Africa’s private sector. On a quarterly basis, the fourth quarter was the strongest quarter in 2013; however, the pace of expansion remains subdued,” Faulkner noted.

Last month, Kagiso reported a seasonally adjusted PMI of 52.4 in November, which brought the average PMI for the first two months of the fourth quarter of 2013 to 51.6.

“Growth in new work eased and a fall in new export orders continues to suggest rebalancing in the economy will be a gradual process, with the trade balance remaining under pressure in the coming months,” Faulkner explained.

New orders increased marginally, while new business was domestically driven, as demand from foreign markets weakened.

“While it should be of concern that growth is being driven primarily by the domestic market, it should also be remembered that there is still some adjustment as a result of the weaker currency, seeing some local producers preferring to satisfy the somewhat improved domestic demand, as it is cheaper than exporting,” Bezuidenhout added.

The HSBC PMI indicated that, while input cost inflation eased to a near one-year low, it remained sharp as raw material and fuel prices increased – a view that Bezuidenhout believed was caused by rising labour costs not compensated for by increased productivity.

Respondents to the HSBC PMI had said that increased raw material and fuel prices, combined with unfavourable exchange rates, were the main reasons for the rise in purchase prices, which had resulted in companies raising their charges by the greatest extent in three months.

Supply chains, however, were recovering from the impact of upstream strikes earlier in 2013, as delivered backlogs improved.

“This will bolster the expectation expressed by manufacturers towards the end of 2013, that they expect greater levels of stability over the next 12 months to two years,” Bezuidenhout commented.

The HSBC South Africa PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in about 400 private-sector manufacturing, mining, services, construction and retail companies.

HSBC PMI calculates the weighted average of five individual subcomponents, namely new orders (30%), output (25%), employment (20%), suppliers’ delivery times (15%) and stocks of purchases (10%).