Employment decline drags PMI lower

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NeedWork.jpgThe seasonally adjusted Kagiso Purchasing Managers' Index (PMI) lost 2.1 points in December, falling to 47.4.

Despite advancing towards the key 50-point mark in November, the December decline marks the fourth consecutive month of contraction, a trend last observed during the 2008/2009 recession.

The decline in the PMI is largely due to the fact that the Employment Index plummeted by 7.4 points during the month to 44.7, said Kagiso Asset Management Head of Research Abdul Davids. "This sharp decline comes amid bleak employment dynamics within the manufacturing sector and adverse sentiment towards labour following various strikes in the second half of 2012," said Davids.

Stats SA's quarterly employment figures indicate that during the third quarter of 2012 employment growth in the manufacturing sector remained flat on a quarter-on-quarter basis and lower (by 4 000 workers) on a year-on-year basis.

However, since the PMI Employment Index has been volatile in the past, more data is required before a conclusive outlook on employment prospects within the sector can be reached, noted Davids.

Furthermore, while production improved - the Business Activity Index gained 1.4 points to reach 47.3 - the sustainability of this increase is unclear. "Despite increased production, demand for manufactured goods remained weak during December, as evidenced by the 2.8 point decline in the New Sales Orders Index. At 44.9, new sales orders are at their lowest level since August 2009," explained Davids.

In terms of inflation, the PMI continued to suggest elevated input cost pressures, with the Price Index stabilising at a level of 79.7. "Cost pressures arising from ever-increasing electricity and fuel prices and rising wage demands are placing significant strain on manufacturers who are struggling to compete globally. As a result, conditions within the local manufacturing sector are expected to remain challenging in the year ahead," concluded Davids.

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