PMI nudges higher but manufacturing sector continues to take strain

01 April 2015

The seasonally adjusted Kagiso PURCHASING MANAGERS’ INDEX™ (PMI™) edged marginally higher in March to 47.9 index points from 47.6 points in February, mainly due to an almost 4 index point rise in the Employment Index. The slight improvement in the headline PMI brought the average for the first quarter of 2015 to 49.9 index points – just below the neutral 50-point mark and 1.3 points lower than the 2014 fourth quarter average. According to Abdul Davids, Head of Research at Kagiso Asset Management, this suggests that the rebound in actual production growth in the fourth quarter is unlikely to be repeated in the first quarter. “Electricity load-shedding and general weak demand seems to have nipped the recovery in the bud and will continue to weigh on the (manufacturing) sector going forward,” he says.

Despite the improvement in the Employment Index, it remained well below the 50-point mark at 46.9 points. The average 44.6 point level for the first quarter of 2015 (compared to the average 46.9 points in the fourth quarter of 2014) confirms that employment conditions remained subdued.

The two largest subcomponents of the PMI, the New Sales Orders and Business Activity indices, edged lower in March, with the New Sales Orders index slipping to 49 points from 49.3 previously. This slower demand for sales orders in turn contributed to the Business Activity index - which has been volatile since October 2014 due to the uncertainty of the underlying environment as the timing and frequency of load-shedding is unstable - falling to 44.6 index points (from 45.5 previously).

After signalling a slowdown in cost price pressures for five months in a row, the Price Index reflected a renewed rise in the rate of input cost increases. However, the first quarter average came in at just 63.4 index points - below the 69 point average recorded during the fourth quarter of 2014. Davids noted that the Price Index was likely to move upwards in the months ahead due to expected increases in petrol and diesel prices.

Despite overall difficult conditions in the sector and a decline in the index measuring expected business conditions in six months’ time to 60.8 points from 64.4 before, purchasing managers still remained relatively optimistic about the future. This was also reflected in the PMI leading indicator, which nudged up slightly.