PMI declines as manufacturing recovery suffers major setback

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Strike.jpgThe seasonally adjusted Kagiso Purchasing Managers’ Index (PMI) declined steeply by 7.4 points to 49.1 in September, reversing the gains made over the last few months, said Abdul Davids, Head of Research at Kagiso Asset Management.

 
The index is now below the key 50-point mark for the first time since March 2013 and is also lower than the PMI readings of China and the Eurozone. The flash Eurozone manufacturing PMI remained relatively stable at 51.1 in September, while the final HSBC manufacturing PMI for China was unchanged at 50.2 points.


Following a significant improvement to 59.2 in August, the Business Activity Index plunged to 46.7 in September. Despite the weak monthly figure, the quarterly reading is more optimistic as the index measured 52.6 in Q3, up from 51.7 and 49.8 in Q2 and Q1 respectively, said Davids.


The New Sales Orders Index lost 9.4 points in September, reflecting the knock-on effects to the wider manufacturing sector from the prolonged strike activity in the vehicle manufacturing sector. “Intermittent mining sector disruptions and fears about future industrial action may also be weighing on manufacturers,” says Davids. “If this is the case, an end to the vehicle component strike and a quick resolution to AMCU’s strike in the platinum mining sector should see an imminent rebound in activity and orders.”


After moving above 50 in August, the Employment Index lost 1.7 points to end at 49.5 in September. On a quarterly basis, the employment data (49.4) suggests that a recovery in factory sector employment is unlikely over the short-term. However, the Q3 average is a solid improvement on the bleak 44.7 recorded in Q2.


The Price Index (which experienced significant upward pressure from higher fuel, electricity and labour costs for most of this year) declined by 4.5 points to 82.7. While this easing is likely owed to a more stable oil price in September, the index is still at a relatively high level. “We expect this index to remain high as Brent crude oil prices remain elevated and the Rand exchange rate fluctuates around the R10 level to the US dollar,” says Davids.


Lastly, the index measuring expected business conditions in six months’ time lost four points to reach 51.8, indicating that purchasing managers were less optimistic about future prospects. This weaker sentiment was supported by the PMI leading indicator, which remained below 1 in September.


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