SA’s manufacturing activity deteriorates to four-year lows

The Kagiso purchasing managers index (PMI), which gauges activity in manufacturing, fell to 45.4 in April from 47.9 in March.

A below-50 reading suggests activity is contracting. The index has been below 50 for three consecutive months.

Weak manufacturing output does not bode well for economic growth.

The fall in the PMI was mainly driven by a four-point decline in the business activity sub-index, which is at its most depressed since July 2011.

“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 is unlikely. In fact, conditions could worsen further in the second quarter,” said Kagiso Asset Management head of research Abdul Davids.

April was a tough month for manufacturers owed to the intensity of load-shedding and, to a lesser extent, the large number of public holidays, added Davids.

“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),” he said.

The employment sub-index remained well below the 50-point mark at 45.2 points, confirming the subdued trend in employment conditions.

New sales orders and business activity sub-indices are the two largest sub-components of the PMI.

The price sub-index continued to rise. It lifted to 69 index points in April from 67.9 in March.

Petrol prices have started to increase on higher oil prices, adding to the cost pressures on producers.

The price sub-index is likely to move upwards in the months ahead owed to expected increases in petrol and diesel prices.

Purchasing managers remained pessimistic about the future. The index measuring expected business conditions in six months’ time declined for a third month in a row to 56.3 points in April.
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