PMI drops, pointing to flat 1Q 2014 factory output

01 April 2014

The seasonally adjusted Kagiso PURCHASING MANAGERS’ INDEX™ (PMI™) dropped by 1.4 index points to 50.3 in March, mainly driven by a decline in the New Sales Orders Index, which tumbled to its lowest level since August 2006. Abdul Davids, Head of Research at Kagiso Asset Management, says the decline in the March PMI index brings the average for the first quarter to 50.6, which suggest that the manufacturing sector is struggling to gain any real momentum. “The South African manufacturing PMI remained firmly below levels recorded in developed economies,” says Davids. “In the US, the preliminary manufacturing PMI nudged down to 55.5 in March from a 45-month high of 57.1 in February, while the Eurozone’s flash manufacturing PMI came in at 53.0, slightly down from 53.2 in February.” However, Davids notes that the Chinese manufacturing PMI is underperforming even South Africa, pointing out that the Chinese flash manufacturing PMI fell to an eight-month low of 48.1 points.

In SA, the New Sales Orders Index fell by 6.8 index points to 46.6 from 53.4 in February. “This was likely due to weaker domestic demand. The demand weakness may have been exacerbated by the prolonged production stoppages in the platinum mining sector, which halted the need for supplies from specific manufacturing sub sectors,” says Davids.

On a positive note, the Business Activity Index returned to a level above the neutral 50-point mark (after lingering below the neutral 50-point mark for three months running), suggesting a moderate acceleration in output. The index rose to 51.0 from 48.4 in February. 

The Price Index eased marginally to 93.0 points from February’s record high of 95.1. “The index remained exceptionally high and suggests considerable pressure on input costs, likely driven by the rand exchange rate that remains substantially weaker than 12 months ago,” according to Davids. 

The Employment Index ticked up by 3.6 index points to 51.8, while the Inventories Index returned to January’s level after rising sharply in February. It fell to 53.7 from 59.6 in February. 

The index measuring Expected Business Conditions in six months’ time fell to its lowest level since September 2013 however, Davids notes that, at 54.5 index points, “manufacturers are less optimistic but still expect conditions to improve over the next few months.”



Download: march_2014_pmi.pdf