Seifsa welcomes PMI increase to 47.2 in April

2nd May 2019 By: Marleny Arnoldi - Deputy Editor Online

Seifsa welcomes PMI increase to 47.2 in April

Seifsa chief economist Dr Michael Ade
Photo by: Creamer Media

The Steel and Engineering Industries Federation of Southern Africa (Seifsa) has welcomed the increase in the seasonally-adjusted Absa Purchasing Managers’ Index (PMI) for April.

Chief economist Dr Michael Ade said the rebounding indicator was encouraging for production processes.

The PMI data for April showed an improved level of industrial activity, recording 47.2 points, compared with 45 points in March.

“Encouragingly, the latest seasonally-adjusted preliminary data arrest a declining trend in the composite PMI since the beginning of the year, with the numbers moving from a nondescript 49.9 to 46.2 and a lower 45 points in the respective months of January, February and March this year.

“Moreover, the deterioration in production activity during the first quarter of 2019, as a proxy by the aggregate PMI, contemporaneously mimics the slump in key indicators such as the business expectations, business confidence and consumer confidence indices. The current performance of the PMI is also against the backdrop of a rebound in expected business conditions in April and is reassuring,” Ade said.

Of greater concern though, according to Ade, is the high volatility and heightened uncertainty in the trajectory of the PMI subindices – business activity, inventories, suppliers’ performance, employment and new sales orders – which do not provide much confidence to purchasing executives.

Ade said particular references were made to the slight dip in suppliers’ performance and employment indices, and the acute decrease in the inventories subindex, recording levels of 53.4, 41.9 and 42.5 points, respectively.

He added that the April reading of the inventory subindex indicated a sharp contraction from an expansionary zone in March, which he said was worrisome.

“The trend could delay or even clog chain manufacturing processes; therefore, spelling serious trouble for manufacturing production lines in a subdued economic growth environment.

“Typically, manufacturing entails [the] division of tasks and capital or labour is supposed to complete a particular task before a product moves to the next position in the production chain. In a situation where there is nonperformance by contractors, shortage of material, inventory or labour, including partial delivery as reflected by the divergent data of the PMI subindices, there will be a negative impact on a set of sequential manufacturing operations,” Ade explained.

These include negative effects on production lines in smelters, mills or factories, where inputs are refined to produce intermediate or final products, with grave implications for the broader economy.

Ade concluded that the improved performance of the composite PMI was encouraging, given the tough economic environment for local businesses, which must also worry about increasing petrol prices, as well as rising energy and input costs, while planning production processes.