Kagiso PMI rises back above neutral 50-point mark in May

01 June 2015

The seasonally adjusted Kagiso PURCHASING MANAGERS’ INDEX™ (PMI™) recovered from an 11-month low in April to reach 50.8 index points in May. The 5.4 index-point increase brought the index back above the neutral 50-point mark, albeit only slightly.

The biggest driver of the increase in the headline PMI was the solid recovery in the new sales orders index. The index rose to 52.2 points in May. The 9.9 index-point gain erased last month’s unexpected sharp fall to 42.3 index points, which was the lowest level since August 2009. The improvement in demand filtered through to a similar gain in the business activity index. The index rose from a dismal 40.6 index points to 49.6 in May.

According to Lisette IJssel de Schepper, an economist at the Bureau for Economics Research, “the significant gains suggest that the factors that held back the manufacturing sector in April were alleviated somewhat in May”. This included several long weekends due to public holidays in April. In addition, while load-shedding still weighed on the sector in May, it was mainly scheduled on weekends and the late afternoon on working days. This could have alleviated the constraint somewhat. Furthermore, the sustained weak level of the rand exchange rate, as well as improving growth prospects in Europe, could have supported manufacturers targeting the export markets. Respondents indicated that rand weakness is starting to benefit competitiveness on international markets.

Manufacturers noted an acceleration in input costs, with the price index increasing for a third consecutive month to 73.2 from 69 previously. The fuel price increase in June, as well the electricity price hike scheduled for July will keep upward pressure on costs going forward.

IJssel de Schepper concludes that “higher demand will have to be sustained going forward for manufacturing production to recover strongly from the contraction recorded in the first quarter of 2015”.