The seasonally adjusted Absa Purchasing Managers’ Index (PMI) recorded a solid increase in November, gaining 3.6 points to 57.2, making it the highest level for the headline PMI since before the third wave of Covid-19 infections and the social unrest shock in July.

At 55.4, the average headline PMI reading for October and November is up notably from the 51.5 recorded in the third quarter of this year. After a very poor third quarter, Absa says this “bodes well for a recovery in actual manufacturing production” in the fourth quarter. 

Business activity and new sales orders, the two subindices that were most severely impacted by the steel sector strike in October, were also the ones that improved the most in November.

Absa notes that it was “heartening” that factory activity and the demand for manufactured goods seemed to be resilient against the impact of further bouts of load-shedding in November.

Of the respondents that posted comments, a few mentioned a ramp-up of activity and demand ahead of the yearly festive season industry break from mid-December. Further good news was the employment indicator that moved back above the 50-point mark.

However, in light of sustained weak actual employment outcomes, month-to-month movements in this index should be treated with caution, Absa cautions.

On a less positive note, after some reprieve in October, purchasing prices moved higher once again in November. As before, some respondents highlighted the adverse impact of higher shipping costs.

The other sour note in the November PMI was a more than five-point decline for the index measuring expected business conditions.

Just more than a third of the November PMI responses were received after the announcement that a new Covid-19 variant is responsible for the recent sharp rise in infection numbers in Gauteng and the subsequent widespread travel bans imposed on South Africa.

Combined with a severe Covid-19 fourth wave in parts of Europe, a key export market for local manufacturers, and the start of the domestic policy interest rate hiking cycle, this may explain the more subdued expectations for future business activity, Absa says.

After retreating in September and October, the business activity index posted a brisk recovery in November despite sustained load-shedding during the month, which some respondents mentioned as a constraint on activity.

Even so, Absa says it seems the normal end-of-year rush to complete projects supported activity.

“This does suggest that especially the larger manufacturers are perhaps becoming less sensitive to the impact of load-shedding, probably through the increased use of generators and/or more efficient energy consumption.”

Statistics South Africa, meanwhile, reported that actual manufacturing production tanked by 3.9% quarter-on-quarter in the third quarter, meaning that the PMI business activity results for October and November bode well for a sizeable (quarterly) recovery in the fourth quarter.

Meanwhile, the new sales orders index also had a good month, rising by six points. With export sales only up marginally, the new sales orders gain must have been mainly owing to improved local demand, Absa says.

It adds that, as suggested by recent commentary from South Africa’s leading clothing retailers, a weaker currency and global supply chain bottlenecks have led some consumers to switch from imports to domestically manufactured goods. 

With activity and sales improving, the employment index snuck back above the key 50-mark in November, making it the first time since before the shock events in July that the index was above 50.

“While undoubtedly positive, the decline in the expected business conditions index, as South Africa moves towards a fourth Covid-19 wave, argues against a sustained rise in factory sector employment at this stage,” Absa notes.

The inventories index saw a second consecutive robust increase, considering that, in October, besides manufacturers gearing up to meet festive season demand and perhaps proactively building stocks in the event of prolonged supply chain disruptions, it is not immediately clear what would have driven the increase.

Despite moving lower, the supplier deliveries index remained above 70 for the fifth month in a row, suggesting lengthy lead times, which Absa says was most likely a function of improving, albeit not particularly elevated, domestic demand conditions juxtaposed against sustained global (and domestic) logistical bottlenecks.

Following a modest reprieve in October, the purchasing price index moved higher once again as manufacturers continue to face a range of input cost pressures, including high prices for raw materials, packaging, energy, shipping rates, and the impact of a weakening rand exchange rate.

The softer currency/higher oil price, however, translated into another large fuel price hike in December.