A smaller-than-usual decline in the non-seasonally adjusted January PMI resulted in the seasonally adjusted PMI increasing significantly and perhaps overstating the improvement in actual manufacturing output in January, said Andre Coetzee, MD of CIPS Africa.
Manufacturing may be starting the year on good footing, but underlying conditions are unlikely to be as rosy as suggested by the seasonally adjusted figure.
It is not unusual for the adjusted and unadjusted figures to move in divergent directions and the divergence tends to be particularly large in January as the seasonal factor is typically low, said Coetzee.
“The unadjusted PMI is inclined to fall in January, but this January’s drop was smaller than usual. As a result, the seasonally adjusted figure increased significantly and may overstate the improvement in business conditions in the factory sector in January,” he said.
The seasonally adjusted PMI increased by 4 index points to 54.2, while the non-seasonally adjusted PMI figure declined to 48.2 index points.
Statistics SA figures released on Tuesday showed that manufacturing production rose by 1.1% in December 2014 compared with a year earlier.
The increase in output was mainly owed to higher production in the food and beverages division.
Stats SA also reported that seasonally adjusted manufacturing production increased by 2.5% in Q4 2014 compared with Q3 2014.
The main contributors to the 2.5% increase were the petroleum, chemical products, rubber and plastic products division and the basic iron and steel, nonferrous metal products, metal products and machinery division.
Manufacturing data were in line with the findings of the seasonally adjusted PMI.
The rise in the seasonally adjusted PMI figure was almost fully driven by a jump in the seasonally adjusted business activity index, which rose to 61.7 in January from an average of 51.6 in the fourth quarter. This points towards an acceleration in output in January compared to December.
The decline in the unadjusted figure was smaller than usual, amplified by the low seasonal factor and explains the large jump in the seasonally adjusted index. The non-seasonally adjusted figure fell from 49.3 to 48.8 index points, which was still significantly higher than the 38.8 recorded in January 2014.
A 1.1 index point rise in the new sales orders index to 53.7, as well as an increase in the inventories index to 61.2 further supported the uptick in the PMI, albeit to a lesser extent than business activity. On the other hand, the employment index continued to weigh on the headline index and dipped to 43.8 in January from 46.3 in December.
Sharply lower international oil prices and domestic fuel prices resulted in a fourth consecutive decline in the price index to 61.9. The continued moderation in the rate of input cost increases, as well as the expectation that oil prices will remain low for coming months, likely underscores why purchasing managers are optimistic about the near future, concluded Coetzee.
The index measuring expected business conditions in six months’ time rose to 66.9.
