The four index point rise to 54.2 in the seasonally adjusted Kagiso Purchasing Managers Index (PMI) in January suggested that manufacturers have started the new year on an improved footing.

CIPS Africa MD Andre Coetzee said the rise from 50.2 in December indicated an improvement in business conditions in the factory sector, despite a decline to 48.2 index points from 51 in December of the nonseasonally adjusted PMI.

While this pointed to an acceleration in output in January compared with December, Coetzee warned that the “underlying conditions” were unlikely to be as “rosy” as suggested by the seasonally adjusted figure.

The unadjusted PMI was inclined to fall in January; however, the “smaller than usual” drop in January and significant seasonally adjusted increase may have overstated the improvement in actual manufacturing output in January.

“We are wary of getting too excited about the bounce in January manufacturing PMIs … and would expect to see a ‘normalisation’ come [during] February,” said BNP Paribas Cadiz Securities economist Jeffrey Schultz.

While lower manufacturing input costs, owing to softer oil price, provided support to struggling manufacturers, South Africa’s electricity supply concerns, weak demand exhibited by some of the nation’s key trading partners and the fact that the PMI ‘leading indicator’ was in negative territory indicated that there was “no easy outlook” for the manufacturing side of the economy.

The seasonally adjusted business activity index rose to 61.7 in January, from an average of 51.6 in the fourth quarter, becoming a major driver of the rise in the seasonally adjusted headline PMI.

The nonseasonally adjusted business activity index fell from 49.3 in December to 48.8 index points in January. However, this was a significant year-on-year rise when compared with the 38.8 recorded in January 2014.

Further, supporting the uptick in the PMI was a 1.1 index point rise in the new sales orders index to 53.7 and an increase in the inventories index to 61.2.

The employment index continued to weigh on the headline index and dipped to 43.8 in January from 46.3 in December, while the lower oil prices and domestic fuel prices resulted in a fourth consecutive decline in the price index to 61.9.

“The continued moderation in the rate of input cost increases, as well as the expectation that oil prices will remain low for coming months, likely underscores why purchasing managers are optimistic about the near future,” Coetzee said.

The index measuring expected business conditions in six months’ time rose to 66.9, compared with the index of 62.7 recorded in December.

The Kagiso PMI is based on a survey conducted by the Bureau for Economic Research and CIPS Africa.