Procurement Survey suggests that output growth is stuck

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images (1).jpgThe seasonally adjusted Barclays Purchasing Managers’ Index (PMI) declined further below the neutral 50-point mark and fell to 48.1 in October from 49.9 index points in september1. The headline index remained stuck below 50 for a third straight month. This suggests that the manufacturing sector is struggling to gain traction in the face of broad-based weak demand.

 

The business activity index fell to 47.7 index points, which is the weakest level since April 2015. This signals a poor start to the fourth quarter after the sector likely posted modest quarter-on-quarter growth in the third quarter. In line with the weak business activity levels, the employment index fell to 44 from 48.5 points previously. The new sales orders index also declined in October. At 50.5, the index is only just above the 50-point mark. Persisting weak demand may be why output growth is not accelerating, despite an alleviation of electricity and other supply-side disruptions. Manufacturers are likely cautious to expand output in the absence of a sustained improvement in demand. This is supported by the PMI leading indicator which remained below 1 in October as inventories outstripped demand. this suggests that output is likely to remain under pressure.


Encouragingly, the price index declined to 73.8 from 77.6 index points previously. The slightly stronger rand exchange rate in October, particularly at the start of the month, may have alleviated some of the cost pressures for importers of intermediary and raw materials. Another positive development was the increase in the index measuring expected business conditions in six months’ time. The index rose to 53.2 in October and thereby erased September’s drop to 49.3.
 

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