November PMI loses some of October's gains

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PMI_Nov2019_200.jpgThe seasonally adjusted Absa Purchasing Managers' Index (PMI) ticked down to 47.7 index points in November from 48.1 in October. The decline was broad-based as four of the five subcomponents of the headline PMI nudged down compared with the previous month.

Despite the decline, the average level of the PMI in October and November is still slightly above that recorded in Q3.

Worryingly, business activity showed the sharpest decline of the PMI's major components. The index fell by 6.2 points to a multi-year low of 39.4 in November.

According to Stats SA, quarterly manufacturing production contracted in Q3 2019. The weak readings on the business activity index seen in Q4 so far argue against a strong, if any, recovery in manufacturing output.

Demand remained under pressure with the new sales orders index losing some of October's gains, but managed to stay above September's level at 43.3 index points. Nonetheless, the current level remained well below the neutral 50-point mark. This suggests that orders remained depressed. Respondents saw a downturn in export demand in November.

The only major subcomponent to record an improvement compared to the previous month was purchasing inventories, which picked up from a ten-year low reached in October. Notwithstanding the increase, the index remained well below the neutral 50-point mark.

The only subcomponent to come in above 50, which generally points to improving conditions, was the supplier deliveries index.

The index tracks the performance of suppliers of materials, goods and services to the manufacturing sector compared to the previous month. A faster delivery is seen as a negative factor as it signals suppliers were less busy than the month before. As such, the inverse of the index is used in the PMI calculation.

The index ticked down in November after reaching a four-month high in October. Despite the drop, the index remained above the neutral 50-point mark for a third straight month.

The employment index nudged down after two consecutive improvements. The index declined by 0.5 points to 42.3 in November.

On a more positive note, respondents turned slightly less pessimistic about the near-term future. The index tracking expected business conditions in six months' time increased to 47.4 index points in November after recording five consecutive declines. Nonetheless, despite the uptick, the latest reading means that conditions are still expected to worsen in six months' time, albeit less so than before.

The purchasing price index declined further in November (5.7 points) after a sharp fall in October (7.7 points). The index reached the lowest level since early 2018 and is now more than 13 points below the level of just two months ago. Factory-gate inflation, as measured by Stats SA's Producer Price Index (PPI), has also trended lower of late.

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