PMI slumps to 45 as manufacturing activity falls to a four year low

04 May 2015

The seasonally adjusted Kagiso PURCHASING MANAGERS’ INDEX™ (PMI™) fell to 45.4 index points in April from 47.9 points in March, dragged down by a four point decline in the Business Activity Index to 40.6 - its lowest level since July 2011. According to Abdul Davids, Head of Research at Kagiso Asset Management, April was a tough month for manufacturers due to the intensity of electricity load shedding and, to a lesser extent, the large number of public holidays. “This not only directly hampered output, but also weighed on domestic demand and likely contributed to the 6.7 point drop in the New Sales Orders Index (currently at its lowest level since August 2009),” Davids says. “While the manufacturing sector seems set to contract on a quarterly basis in the first quarter of 2015 (barring a remarkably strong performance in March), the April PMI suggests that a quick recovery unlikely. In fact, conditions could worsen further in Q2,” he adds.

Eurozone manufacturing PMI dipped only slightly in April from an 11-month high reached in March, while in the US the ISM Manufacturing Index remained above 50 (although the index has trended lower of late). This further underlines the fact that domestic demand, rather than global developments, is holding back sales orders, Davids notes.

In line with the weak output picture, the Employment Index ticked lower to 45.2 points from 46.9 points in March - confirming the subdued trend in employment conditions.

As expected, the increase in the domestic fuel price, due to a rise in the international Brent crude oil price and a substantial hike in fuel levies, contributed to a further acceleration of input price pressures. The Price Index rose to 69.0 points from 67.9 points in March.

The index measuring expected business conditions in six months’ time declined for a third month in a row to 56.3 points in April, while the PMI leading indicator also deteriorated sharply, falling to its worst level since the middle of last year as inventories significantly outstripped new sales orders.