Manufacturing sector struggles to gain momentum as load shedding bites

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Manufacturing.jpgThe purchasing managers index (PMI), which measures activity in SA’s manufacturing sector, improved marginally in March, but remained at levels that suggest output was weak and that SA’s manufacturing sector is struggling to gain momentum.


The index rose to 47.9 in March from 47.6 in February. A below-50 reading suggests manufacturing activity is contracting.


The slight improvement in the headline PMI brought the Q1 2015 average to 49.9 index points – 1.3 points lower than the average for Q4 2014. This suggests that the rebound in actual production growth in Q4 is unlikely to be repeated in Q1, said Abdul Davids, Head of Research at Kagiso Asset Management.


“Electricity load-shedding and general weak demand seem to have nipped the recovery in the bud and will continue to weigh on the [manufacturing] sector going forward,” said Davids.


The index measuring employment levels in the sector improved, but it remained below the 50-point mark at 46.9 points. The average 44.6 point level for Q1 2015 (compared with the average 46.9 points in Q4 2014) confirms that employment conditions remained subdued, noted Davids.


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. This slower demand for sales orders in turn contributed to the Business Activity index - which has been volatile since October 2014 owed 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).

 

AbdulDavids2.jpgAfter 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 Q1 average came in at 63.4 index points - below the 69 point average recorded during Q4 2014. Davids noted that the Price Index was likely to move upwards in the months ahead owed 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.
 

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