The IHS Markit Purchasing Managers’ Index (PMI) data for September has signalled a notable softening in the economic decline across South Africa’s private sector as Covid-19 restrictions were eased to Level 1.

British financial analyst company IHS Markit economist David Owen reports that the headline number rose to 49.4 at the end of September, which was the highest reading since October last year and, when compared with historical growth trends, was indicative of a rise in quarterly gross domestic product.

He explains that output and new business had fallen at much softer rates compared with earlier months, as several surveyed companies highlighted a pick-up in demand, coinciding with businesses returning to work.

The PMI had risen to 49.4 in September from 45.3 in August, owing to increases in the output, new orders, employment and stocks of purchases subindices.

Owen states that, at the end of the third quarter, South African companies registered only a fractional drop in output that was the softest seen in the current 17-month sequence of contraction. 

“While many firms noted a lasting impact of lockdown measures on activity, a number of respondents saw steps to reopen the economy lead to an expansion of output.

“Notably, the decline in new orders slowed to the softest pace since last November. Several firms reported a rise in demand as businesses returned to work. In addition, foreign orders dropped to the least extent since the Covid-19 outbreak, amid an improvement in global activity,” IHS notes.

Businesses were subsequently more confident of a future rise in output, as sentiment improved to the strongest since February. In anticipation of output growth, firms expanded input buying for the first time in 13 months, albeit at only a marginal rate.

Nevertheless, IHS says this led to a softer and only modest contraction in overall inventories.

There was further evidence of spare capacity in September, as backlogs fell for the fifth month running.

As such, companies lowered employment levels sharply again, albeit at the slowest pace since March, as some firms increased hiring owing to a rise in client orders.

Delivery times continued to lengthen severely in September, as firms often cited weak availability of some inputs, including steel and other metals.

Input price inflation accelerated to a five-month high in the latest survey period.

Panellists to the PMI attributed the rise to a weaker rand, short supply of materials and higher input demand following a pick-up in economic activity.

Simultaneously, output charges increased for the first time since April, albeit at only a modest rate, with some firms passing on higher costs to clients.

Owen states that expansions in output and demand will be needed to help businesses revive job markets. He says a rise in jobs will likely appear after an increase in economic activity, as firms will need time to recoup losses from the pandemic.