August PMI: back into expansive territory

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PMI June 2010.jpgThe seasonally adjusted Kagiso PMI reached 50.3 index points during August . The rise above the critical 50 mark followed two consecutive months where the PMI suggested that the manufacturing sector was contracting, the Kagiso website reports.

"The new sales orders index increased by 3.5 points to move back above the key 50 level, indicating that the demand for factory goods recovered somewhat in August.

"The improved demand conditions suggest that the 46.9 index point reading (below 50) for the business activity index during August will hopefully be temporary and may also explain why purchasing managers were more upbeat about conditions going forward – after five consecutive months of lower readings, the expected business conditions index rose by almost 2 index points to 59.6.

Download the August report.

PMI suggests that factory output expanded in August, albeit only marginally.

"Despite the move above 50, the average PMI for the first two months of 2010Q3 was 49.9 versus an average of 51.6 for Q2. The current evidence hints that growth in the manufacturing sector may have moderated further in the third quarter, which does not bode well for overall GDP growth in the second half of 2010.

"The move back above the key 50 mark for the business activity index in July was short lived with the index falling back below 50 to 46.9 index points during August.

"A continuation of the trend should see improved factory production levels in coming months. However, judging by recent worse than expected global economic data releases (Germany excluded), it will be left to better domestic demand to boost factory output levels. At this stage, the sustainability of a SA demand recovery remains in question without the resumption of employment creation.

"The August PMI brought some better news on the factory job front with the PMI employment index rising for the second month in a row to reach 48.3. The index indicates that while the manufacturing sector continued to shed jobs in Q3, the rate of decline has slowed.

"In light of renewed concern regarding the prospects for the global economy, it is interesting that purchasing managers were somewhat more upbeat about future business conditions. The expected business conditions index rose by almost 2 index points to 59.6. However, some caution is warranted as the August rise may simply reflect that managers became overly pessimistic about the sector’s outlook in the last number of months – the index declined from a high of 74 points in February 2010 to 57.7 during July. The long-term average for the index is 67.4.

For further information:

Theo Vorster, Kagiso Securities
Tel: (011) 341 3042

Hugo Pienaar, Bureau for Economic Research
Tel: (021) 887 2810

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