January PMI up 4.2 points to 50.9

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charts_graphs.jpgThe seasonally adjusted Absa Purchasing Managers’ Index (PMI) rose to 50.9 in January 2017, up from 46.7 in December 2016. This was the first time since July 2016 that the index edged above the neutral 50-point mark, suggesting that the manufacturing sector started the year on a relatively solid footing.

The rise in the headline PMI was supported by four of the five underlying subcomponents increasing in January compared with December 2016.

The new sales orders index managed to remain above the neutral 50-point mark for a third straight month, albeit that the index declined to 50.4 from 50.9 points. The sustained uptick in orders filtered through to higher output levels. As such, the business activity index rose to 52.7 – the best level since June 2016.

The employment index also improved. However, it remained below the neutral 50-point mark for a fifth month.

The index measuring suppliers’ performance recovered smartly to 53 points in January from a historic low of 40.9 in December.

After remaining unchanged in December at 65.6, the purchasing price index rose to 72.4 index points in January. This was likely owed to the fuel price hike at the start of the year. Despite the 6.8-point increase in January, the index is still 13.6 points below the level recorded this time last year.
The index measuring expected business conditions in six months’ time surged to 70.3 – the best level since early 2010 – from 53.2 points in December. It was somewhat surprising that respondents were so upbeat about business conditions going forward. Manufacturers targeting the export market may expect to benefit from an uptick in global demand, as reflected by the sustained high levels of PMI readings in the US, Europe and to a lesser extent China.

Domestically, demand from the recovering agriculture sector may improve through 2017, although consumer spending is likely to remain under pressure. The PMI leading indicator dipped just below 1 in January as the inventories index came in slightly above the new sales orders. This means that the business activity index may fall back somewhat.

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