PMI continues climb in March

South Africa’s Purchasing Manager’s Index (PMI) rose to 50.5 index points in March 2016. This is the first time since July 2015 that the index managed to edge above the neutral 50-point mark, signalling a possible expansion in the sector. While the improvement in March is encouraging, the average reading for Q1 2016 (47) is only 1.4 points better than the average recorded in Q4 2015, noted the Bureau for Economic Research (BER).

The business activity index (47.7) also remained stuck below 50 points in March. This suggests that output remained under pressure. Indeed, after the sharp monthly contraction in January’s production figures (as measured by Statistics South Africa), the sector could contract again on a quarter-on-quarter basis in Q1 2016.

As in February, there was the broad-based improvement in the PMI with four out of the five major subcomponents ticking up in March. The biggest driver of the increase in the headline PMI was the 5.2-point rise in the new sales orders index. The index rose to 53.1 in March. This means that manufacturers could have found some benefit from import-substitution or a pick-up in export demand on the back of the sustained weaker rand exchange rate, noted BER. However, the recent improvement will have to be maintained before activity and employment also increase going forward.

Despite the domestic demand environment remaining challenging, purchasing managers are more upbeat about expected business conditions. The index measuring expected business conditions in six months’ time rose from 44.8 to 51.1 points in March.

The PMI leading indicator also edged further above 1 in March, which means that new sales orders outstripped inventories, which (if sustained) could support output in coming months.

The price index remained elevated, albeit that the index declined somewhat to 87.8 from 90.7 in February. The average for the first quarter of 2016 is the highest quarterly average in two years. With the rand remaining weak and a fuel price increase affected in Early April, manufacturers continue to face significant upward pressure on costs.