Financial services provider Absa’s seasonally-adjusted Purchasing Managers’ Index (PMI) has risen firmly to 52.6 points in November, placing it back into expansionary terrain, suggesting that the manufacturing sector could experience another slight expansion in the fourth quarter.
The rise to 52.6 points is a boost from the 50 of October and an average level of 49.6 recorded in the third quarter.
On the positive, Absa notes that both business activity and new sales orders improved for a second straight month in November to reach 49.5 and 54.3, respectively, after both were subdued during the loadshedding-heavy month of September and points to a rise in order volumes for the first time since May.
Encouragingly, the company reports that purchasing managers were more upbeat about business conditions going forward, with the index tracking expected business conditions in six months’ time rising to 51.7, from 49.2 in October.
The purchasing price index remained largely unchanged in November at 75.9, corresponding to price pressures at the start of the production process remaining elevated, but more intense than at the beginning of the year.
The recent decline in the Brent crude oil price, as well as a somewhat stronger rand exchange rate (against the US dollar), bode well for the general downward trend to continue through the final month of the year.
Nonetheless, with loadshedding expected to continue, Absa suggests that the more frequent use of generators by local producers will increase their costs.
Absa’s business activity index also increased in November, but did not manage to break through the neutral 50-point mark, at 49.5.
Nonetheless, the higher average of the business activity index relative to the third quarter suggests that a further, slight, expansion in actual manufacturing output is possible for the fourth quarter. This is “remarkable”, given the extent of loadshedding, says Absa. This was also, to some extent, driven by temporary boosts, especially from vehicle production.
In addition, export sales improved relative to October when external trade was constrained by the labour strike at Transnet.
Following an unexpected drop in October to 41.5, the employment index recovered most of the losses incurred, to reach 45.7 in November.
To drive labour performance further, Absa says a sustained rise in demand and activity is required.
The inventories index stayed above the neutral 50-point mark for another month, at 51.9.
For a third month, the supplier deliveries index stayed at more or less the same level, registering 61.7 in November.
Absa notes, however, that the current level is much lower than what was experienced through most of 2020 and 2021, but is still fairly high compared to before the Covid-19 pandemic. This suggests that supplier deliveries are still slower (as a slowdown in deliveries results in an increase in the index), which points to continued constraints in global supply chains.
The recent decline in the Brent crude oil price as well as a somewhat stronger rand exchange rate (against the dollar) bode well for the general downward trend to continue through the final month of the year, Absa states.