January PMI points to solid start to 2019

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PMI_strong_start_200.jpgThe seasonally-adjusted Purchasing Managers' Index (PMI) edged lower to 49.9 index points in January 2019, down from 50.7 in December 2018.

Despite the decline, the index remains 2 points above the average recorded in 2018, which suggests that manufacturing started the year on fairly solid footing.

The performance of the PMI's sub-components was more mixed, with many of the sub-indices declining compared with their December levels.

The important New Sales Orders Index, despite a decline, managed to stay above the neutral 50-point mark for a third consecutive month, coming in at 50.7 points. The index is 2.5 points above the average recorded in 2018. If the current above-50 level is sustained, output growth going forward shows promise.

This is supported by the PMI's leading indicator, which remained above 1, with orders outstripping inventories.

In January, the Business Activity Index declined by 4 points to reach 49.8. Despite the drop, the index remains about 3 points above the average level recorded in 2018. The current level suggests that output remained more or less unchanged compared with the previous month.

The only sub-component that improved compared with December was the Employment Index. After trending broadly lower since mid-2018, and reaching a multi-year low in December, the index rose by a solid 7.8 points in January to 48.3, albeit remaining below the neutral 50-point mark.

A somewhat surprising outcome of the January PMI survey was the magnitude of the improvement in the index tracking expected business conditions in six months' time: it registered its third consecutive improvement and rose by a solid 15.7 points in January. The current level of 67.2 points is the highest level since April 2018 and about 9 points above the 2018 average.

Respondents may have been relieved that January did not see a return of loadshedding. Furthermore, the seemingly more sustained recovery in demand may also have bolstered optimism.

Another factor that may have lifted sentiment was the fourth straight decline in the Purchasing Price Index. The index dipped to 70.9 and is now 15 points below the high recorded in September 2018. The decline points to less pressure on the cost front. Whether this will be sustained depends not only on developments in the Rand exchange rate and oil prices, but also on the magnitude of the expected 2019 electricity tariff increase.

Meanwhile, the Inventories Index declined for a second month. The level recorded in January is now more or less in line with the 2018 average.

The Purchasing Commitments Index declined further, reaching 41.8 points in January. The index is now 12.5 points below November 2018's level of 54.3.

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