January PMI suggests improvement in business conditions in the manufacturing sector

02 February 2015

According to Andre Coetzee, MD CIPS Africa “The seasonally adjusted  Kagiso PURCHASING MANAGERS’ INDEX™ (PMI™) rose by 4 index points to 54.2 in January 2015 from 50.2 in December, suggesting an improvement in business conditions in the factory sector.” The non-seasonally adjusted PMI figure declined to 48.2 index points from 51 in December.  Coetzee explained “While it is not unusual for the adjusted and unadjusted figures to move in separate directions, the divergence tends to be particularly large in January as the seasonal factor is typically low. Indeed, the unadjusted PMI is inclined to fall in January, but this year’s drop was smaller than usual. As a result, the seasonally adjusted figure increased significantly and may overstate the improvement in actual manufacturing output in January.”

The rise in the seasonally adjusted headline PMI figure was almost fully driven by a jump in the seasonally adjusted business activity index. The index rose to 61.7 in January from an average of 51.6 in the fourth quarter. This points towards an acceleration in output in January compared to December. However, the decline in the unadjusted figure was smaller than usual. This was amplified by the low seasonal factor and explains the large jump in the seasonally adjusted index. The non-seasonally adjusted figure fell from 49.3 to 48.8 index points, which was still significantly higher than the 38.8 recorded in January 2014. Coetzee noted “This means that manufacturers likely started the year better than last year. However, underlying conditions are unlikely to be as rosy as suggested by the seasonally adjusted figure.”

A 1.1 index point rise in the new sales orders index to 53.7, as well as an increase in the inventories index to 61.2 further supported the uptick in the PMI, albeit to a lesser extent than business activity. On the other hand, the employment index continued to weigh on the headline index and dipped to 43.8 in January from 46.3 in December.

Coetzee concluded “Sharply lower international oil prices and domestic fuel prices resulted in a fourth consecutive decline in the price index to 61.9. The continued moderation in the rate of input cost increases, as well as the expectation that oil prices will remain low for coming months, likely underscores why purchasing managers are optimistic about the near future. The index measuring expected business conditions in six months’ time rose to 66.9.”