PMI continues to tumble, business and employment indices fall sharply

02 June 2014

The seasonally adjusted Kagiso PURCHASING MANAGERS’ INDEX™ (PMI™) fell to 44.3 index points in May from 47.4 in April, dragged down by significant declines in the business activity and employment indices, while demand also remained weak. Abdul Davids, Head of Research at Kagiso Asset Management, says the drop in the Business Activity Index, to 42.5 points in May from 48.5 previously, “puts the index firmly in contractionary territory.” The sharp fall in the Employment Index, to 37.2 index points from 44.6 previously, its lowest level in five years, “could imply renewed job losses in the manufacturing sector after the index signalled a stabilisation in the manufacturing labour market since Q3 2013,” Davids adds.

The overall decline in the South African PMI™ continues to be in stark contrast with what is happening internationally, he points out. “In the US, the flash manufacturing PMI rose to a three-month high of 56.2 points in May due to a strong rise in output. In addition, while the Chinese HSBC manufacturing PMI remained just below the neutral 50-point mark, it ticked up to a five-month high of 49.7 index points,” says Davids. The preliminary Eurozone manufacturing PMI dipped slightly to 52.5 index points from 53.4 in April due to a weaker export performance, but continued to signal growth. “Improving conditions in developed economies, as well as signs that Chinese factory activity is picking up, could bode well for South African manufacturers targeting the export market. Continued weakness in the rand could provide further support.”     

The New Sales Orders Index ticked up slightly to 44.8 index points from 43.5 previously but – barring the previous month – this was still the lowest level since August 2009. Davids notes that the index reflects “weak domestic demand conditions, likely exacerbated by the protracted platinum mining strike.”

On a slightly more positive note, the Price Index fell for a third straight month to 70.8, a significant 25 points below the record high level reached in February 2014, suggesting “a moderation in price increases,” says Davids. 

The index measuring Expected Business Conditions in six months’ time rose to 59.6 index points and the PMI Leading Indicator (the ratio between new sales orders and inventories) also improved slightly but remained below level 1 - implying that inventory levels were high compared to the volume of sales orders,” Davids concludes.