PMI volatility detrimental to investment, production, employment – Seifsa
The Steel and Engineering Industries Federation of South Africa (Seifsa) has cautioned that, while the 16% improvement in the Purchasing Managers’ Index (PMI) business activity subindex in October to 52.6 showed a strong rebound from 48.1 in September, its continued volatility was detrimental to investment, production expansion and employment creation.
Seifsa chief economist Henk Langenhoven said on Wednesday that the PMI was important to the metals and engineering sector as it was a “coinciding indicator” that reflected perceptions of economic demand for metals and engineering products.
“September’s indicator was the result of weakness experienced in the construction sector, coupled with the labour market’s instability in both the mining and auto sectors,” he commented.
The longer-term trend of the PMI activity subindex had a low turning point at the beginning of 2012, which led engineering production by between 12 and 18 months.
“The recent shocks could be a precursor to a retreat in production trends,” Langenhoven added.
As a result, the national employer federation was expecting steel and engineering production figures, which were due to be released on November 7, to soften, but hoped that this would not lead to a renewed longer-term downward trend.
This was despite the year-to-date performance having been slightly weaker than that of 2012, and 4% lower for the 12 months ending October, compared with the same period in 2012.
“What remains of great concern is the volatility in the confidence indicators of the PMI, the Bureau for Economic Research’s Quarterly Manufacturing Survey, and quantitative data. This phenomenon has been particularly prevalent since the financial crisis,” Langenhoven concluded.
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