The Absa Purchasing Managers’ Index (PMI) for April decreased slightly to 56.2 index points, from 57.4 in March.

The PMI was, however, 2.5 points higher than the average recorded in the first quarter of this year and 26 points higher than the PMI for April 2020.

Further, all five subcomponents of the seasonally adjusted PMI were in positive terrain for the first time since early 2012.

"Even the subcomponent most often trailing below the 50-point mark, the employment index, managed to increase to well above 50 in April. It is too early to tell whether this points to a sustained improvement in job creation in the manufacturing sector, but it is a positive development nonetheless," the PMI states.

"Business activity continued to increase in April, albeit at a much slower pace compared to the previous month. The index fell back to 50.8 points in April from 56.1 in March, and the business activity index declined markedly in April after solid improvements in the preceding two months."

New sales orders remained robust, although also increasing at a slightly slower pace than in March, with the index declining from 60.4 points to 58.7. Purchasing managers continued to report improved export sales.

"Following three solid improvements, the new sales orders index edged lower. The index points to continued growth in demand and remained firmly above the neutral 50-point mark. Purchasing managers reported a further improvement in export sales, which could continue to benefit as the global economic recovery picks up more speed."

The most surprising outcome of the April PMI survey was the surge in the employment index, especially as the business activity index lost some ground. The employment index rose by a solid ten points to reach the highest level since 2007.

"While the increase is encouraging, it is too early to tell whether this points to a sustained improvement in job creation in the manufacturing sector," the PMI notes.

Export-orientated manufacturers could continue to benefit from the global economic growth recovery, which is expected to accelerate through the remainder of the year. Indeed, led by a booming US economy, prospects for the global economy have brightened further of late. This could, in part, explain why respondents turned notably more upbeat about expected business conditions in six months’ time.

"The expected business conditions index rose to a three-year high of 67.9 index points from an average of 58.5 points recorded in the first quarter of 2021 and a dismal 27.3 points seen this time last year. Furthermore, although the risk of a third wave of Covid-19 infections remains present, relatively low increases in new local infections during the month may have also underpinned the recovery in sentiment. This does mean that should virus metrics turn less favourable, sentiment could sour once again," the PMI notes.

However, another factor that could quell sentiment is the continued increase in cost pressures. The purchasing price index came down slightly from a five-year high reached in March, but remained elevated.

Meanwhile, the rand exchange rate strengthened slightly compared with March, which could have helped with the costs of imported raw materials and intermediate goods. However, this was countered by a sharp increase in the fuel price at the start of the month. Prices of some key input goods have also trended upwards of late and with a low Covid-induced base set in 2020, annual producer prices are set to increase markedly in the next few months.

"The purchasing price index edged down slightly from the five-year high reached in March. The latest official data from Statistics South Africa points to cost pressure building in the manufacturing supply chain. The producer price index (PPI) for intermediate manufactured goods measured 11.2% year-on-year in March 2021, while the PPI for final manufactured goods rose by 5.2% year-on-year in March, which is the fastest pace since mid-2019."

Further, after surging higher in March, the supplier deliveries index fell back to February’s level of 61.7 points. This remains high compared to its long-term history. This is likely owing to continued supply chain frictions and perhaps even shortages of raw materials.

"However, more positively, this could to some extent also be driven by demand from manufacturers picking up by more than expected, resulting in suppliers struggling to keep up. This is also observed in some international PMI surveys.

The report highlights that the supplier deliveries index subcomponent is inverted. If goods are less readily available, this is normally a sign of increased demand for manufactured products and actually lifts the index. "However, it must be noted that other factors, such as lockdowns or material shortages, can also distort the supply chain, lengthen delivery times and, inadvertently, lift the index."