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The seasonally adjusted Absa Purchasing Managers’ Index (PMI) declined to 45.7 index points in August, down from 52.1 in July.
Absa on Monday said that, although the decline was larger than anticipated, it was not entirely unexpected.
The decline followed on July’s solid reading, despite the weak domestic demand environment and growing concerns about the health of the global economy.
For August, however, all of the PMI’s major subcomponents came in below the neutral 50-point mark, which Absa said signalled general weakness in the sector.
For some time, the suppliers’ deliveries index had managed to remain above 50 index points, providing support to the headline index. However, this indicator dropped into contractionary territory in August, the first time it has declined to below 50 index points since April last year.
The business activity and new sales orders indices also slumped back into contractionary territory during August, after a single month above 50 points, in July.
According to Absa, respondents continued to be fairly downbeat about exports for a third consecutive month, while domestic demand likely also weighed on orders.
After two consecutive solid increases, the new sales orders index declined again in August as it slumped back below the neutral 50-point mark to 48.5 points. Despite the drop, the index remained at a level above that recorded during most of this year, Absa said, adding that the index was now more or less in line with the average level of 2018.
In turn, this negatively impacted on output levels, while the sustained weakness in output growth, in turn, affected employment. The employment index fell by four index points to reach a more than five-year low in August.
At 39.1 index points, the index is now at the lowest level since May 2014.
The index tracking expected business conditions in six months’ time also dipped back below the neutral 50-point mark for the first time since November 2018, which Absa said meant that more purchasing managers expect conditions to worsen going forward.
Despite the decline in the diesel price in early August, the purchasing price index rose by 5.7 points to 73.6 in August – the highest level since March.
The increase was likely driven by the sharply weaker rand exchange rate during the month, when compared with July.
The purchasing commitments index, meanwhile, stayed below the neutral 50-point mark for a sixth straight month, and declined by 2.6 points to 41.5 in August.