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PMI contracts for fourth consecutive month on strikes

PMI contracts for fourth consecutive month on strikes

Photo by Duane Daws

1st August 2014

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

  

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The seasonally adjusted Kagiso Purchasing Managers’ Index (PMI) has contracted for the fourth consecutive month, signalling the manufacturing sector’s continued subpar performance.

The index “expectedly” fell from 46.6 in June to 45.9 index points in July, owing to the month-long National Union of Metalworkers of South Africa- (Numsa-) led strike directly impacting manufacturing subsectors.

However, while the protracted strikes in the platinum mining, steel and engineering sectors had weighed on manufacturing output over the past few months, the industry was expected to recover in the second half of the year as the industrial action ends and production ramps up, said Kagiso Asset Management research head Abdul Davids.

The labour action had also weakened the business activity index, which fell to 39.4 points in July – its lowest level in three years – and with activity levels remaining low, the employment index declined to 43.9 points in July.

The new sales orders index registered a slight uptick to 45.4, while the price index rose to 76.5 points.

BNP Paribas Cadiz Securities economist Jeffrey Schultz said the deterioration in key indices of the PMI "should not have come as a big surprise" as the widespread strike in the metals and engineering sector throughout July impacted on most facets of the industrial supply chain.

"While the end to the strike from this past Tuesday means that most [manufacturing] subsectors can now get back to normal, the industry is likely to continue to grapple with elevated input costs and lacklustre domestic demand conditions," he added.

Steel and Engineering Industries Federation of Southern Africa (Seifsa) economist Henk Langenhoven, meanwhile, commented that the July PMI figures could indicate a "bottoming of the trough" in business confidence levels for the metals and engineering sector.

He added, however, that confidence levels remained at their lowest in three years.

"The crucial subindex for business activity has not declined much on June 2014 (0.3%) and has only deteriorated slightly (-1.7%) when measured on a 12-month basis. The first seven months of the year, however, were 10% lower than the same period in 2013. The activity index in July was still 24% lower compared to July 2013," he pointed out.

Langenhoven added that the July PMI numbers were "gauging the worst of the impact of the metals and engineering strike".

"Production in the sector increased up to April and then declined in May for preemptive inventory and export purposes, according to the latest trade figures released recently. The new-orders subindex stabilised in July and, coupled with lower production, caused inventory levels to be somewhat run down. The latter trends are expected to continue for a short period as production ramps up in the sector," he noted.

He further highlighted that the metals and engineering sectors had lost an estimated R6-billion during the recent month-long strike by Numsa members.

“The jury is out on what the impact of the last month will be on the economy. It is sincerely hoped that this was the bottom of the trough,” added Langenhoven.

Edited by Creamer Media Reporter

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