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The seasonally adjusted Absa Purchasing Managers’ Index (PMI) declined to 41.6 points in September, down from 45.7 points in August.
Absa stated in a release on Tuesday that this was the second consecutive large fall in the PMI this year and brought the index more ten points below a recent high, in July, of 52.1 points.
“At the time, we did caution that, given weak underlying demand conditions, the robust July reading was unlikely to be sustained,” the bank noted.
The decline in the headline PMI in September was owing to a sharp drop in the new sales orders, purchasing inventories and business activity subcomponents, which each fell by more than six points to reach levels of about 40 points.
The supplier deliveries subcomponent, which edged above 50 points after having dropped below 50 points in August, provided some support to the PMI in September.
The employment subcomponent rose slightly to 39.6 points, but was still at a very weak level.
Besides sustained weak domestic demand conditions, the poor South African manufacturing print comes against a backdrop of growing concerns about the health of the global economy and, in particular, South Africa’s trading partners in Europe.
“The preliminary manufacturing PMI reading for the Eurozone fell to the weakest level in more than seven years in September, with Germany’s PMI dropping to its lowest level in more than a decade.
“It is unlikely that the South African manufacturing sector will improve on a sustained basis at a time when our key trading partners are struggling. Indeed, while the September PMI already paints a dismal picture of current conditions, respondents expect the environment to worsen further going forward,” stated Absa.
The index tracking expected business conditions in six months’ time declined for a fourth month to 46.1 index points in September.
The purchasing price index increased by 3.1 points to 76.7 points.
With purchasing prices increasing at a faster rate than before, manufacturers’ profitability levels are likely under increased pressure as the sustained weakness in demand suggests little pricing power to pass on the higher costs to consumers, said Absa.