PMI down 2 points - unlikely to pick up soon

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pmi.jpgThe South African manufacturing sector started 2016 on the back foot as the seasonally adjusted Barclays purchasing managers’ index (PMI) fell by 2 index points to 43.5 in January.


This is more than 5 index points below the average level recorded in 2015.


According to Miyelani Maluleka, economist at Barclays Africa the index suggests that manufacturing is shrinking for the six straight month and he notes activity levels are now as weak as they were during the financial crisis.


Furthermore, this is more than 5 index points below the average level recorded in 2015. Unfortunately, purchasing managers do not foresee an improvement over the near term as the index measuring expected business conditions in six months’ time declined to 39.4 – the lowest level in almost 7 years.


The PMI leading indicator also fell further below 1. This means that inventories continue to outstrip sales orders, which does not bode well for production growth going forward.


The business activity index continued its recent downward trend and fell to 37.5 index points. The 4.9-point drop brought the index to the lowest level since 2009. Some respondents stated that the seasonal drop in demand was steeper this January, which likely weighed on production. Indeed, the new sales orders index fell by 4.1 index points to 40.7.


This is, barring January 2009, the lowest January reading on record. In line with the subdued reading on the activity indicator, the employment index also fell. The index declined to 45.4 index points in January from 46.5 in December.


As expected, the price index rose sharply in January. At 86 points, the index is at the highest level in almost 2 years. This was likely driven by the significantly weaker rand exchange rate which pushes up the cost of importing raw materials and intermediate products required for the local manufacturing production process. On the positive side, the increased cost of importing goods may lead to increased import substitution, which could boost demand for some locally produced goods that are usually sourced internationally.


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