Absa PMI declines considerably during July

2nd August 2021 By: Tasneem Bulbulia - Creamer Media Reporter

Amid several supply-side shocks during the month, the seasonally adjusted Absa Purchasing Managers’ Index (PMI) plunged to 43.5 points in July, signalling that the output recovery in the manufacturing sector was set back notably at the start of the third quarter, Absa reports.

The PMI is compiled by the Bureau for Economic Research (BER) and sponsored by Absa. It is based on the PMI produced by the Institute for Supply Management in the US.

From an elevated 57.4 in June, the headline PMI suffered a record single month decline of almost 14 points.

The PMI shows that July was a particularly challenging month, with the broader economy and the manufacturing sector hit by several supply-side and confidence shocks.

These include a severe Covid-19 third wave, the associated adjusted Level 4 lockdown restrictions for a large part of the month, as well as unprecedented looting and arson attacks in KwaZulu-Natal and parts of Gauteng.

The riots disrupted supply chains, industrial output and the demand for manufactured goods.

Moreover, the manufacturing sector may also have been negatively impacted on by the recent cyberattack on Transnet, which resulted in operations at the country’s major ports temporarily grinding to a halt.

The July PMI reading suggests these factors vastly outweigh the positive spillovers to parts of the manufacturing sector from robust South African mining sector activity amid elevated commodity prices.

The PMI says the severe adverse impact of these events is best highlighted in the business activity and new-sales orders indices of the PMI, both of which declined dramatically in July.

The business activity index plunged by an unprecedented 30 index points during July, to 26.6.

The new-sales orders index fell by more than 25 points to 31.9.

After gaining some ground in June, the employment index declined to below the key 50 neutral mark in July, to 47.6.

The inventories index also saw a big decline in July, dropped for the fist time since January to below the 50-point mark, at 39.1.

After increasing notably in June, the supplier deliveries index rose further during July, to 72.5.

The purchasing price index declined for a fourth consecutive month to 77.

After the difficult month, the lifting of some of the Level 4 restrictions and calm returning following the unrest should lift factory output from August, says Absa.