Absa PMI rises slightly in September; remains below 50

2nd October 2017 By: Anine Kilian - Contributing Editor Online

The Absa Purchasing Manager’s Index (PMI), compiled by the Bureau for Economic Research (BER), nudged slightly higher to a still weak level of 44.9 in September from 44 in August.

The index has been well below its neutral level of 50 for four consecutive months.

“The persistence of weak supply-side activity is confirmed in the four consecutive months of sub-50 prints in the manufacturing PMI. Sadly, because of increasing political noise and uncertainty, lack of policy clarity and depressed business confidence, South Africa’s manufacturing sector seems unable to take advantage of more favourable global demand conditions.

“This is likely to translate into another uninspiring gross domestic product growth performance in the third quarter,” commented BNP Paribas South Africa economist Jeffrey Schultz.

Of the main subcomponents, the new sales orders subindex registered the biggest increase in September, rising by 3.1 points to 43.2.

While domestic demand conditions likely remained tough, some respondents noted an improvement in exports after a dip in August. On the back of the uptick in demand, the business activity subindex also rose to 42.8 in September.

Despite the rise in the output subindex, the employment subindex fell back to July’s level of 44.1 index points.

The fuel price increase effective at the start of September likely contributed to the 4.2-point increase in the purchasing price subindex, the BER noted.

The Brent crude price also continued to tick up during the month, with the average price being more than $3/bl higher in September compared with August. While the rand exchange rate was, on average, slightly stronger in September compared with August, it showed renewed weakness during the end of the month.

On a positive note, respondents were more optimistic about future business conditions. The index tracking expected business conditions in six months’ time rose back above the neutral 50-point mark to 52.4 index points.

The PMI leading indicator, however, remained stuck below one due to inventories outstripping new sales orders. This usually does not bode well for output growth, said the BER.