PMI down in 2 consecutive months

The seasonally adjusted Barclays Purchasing Managers’ index (PMI) declined by 6.2 index points to reach 46.3 in August 2016. The magnitude of the drop was somewhat surprising after the PMI remained above the neutral 50-point mark during the preceding five months, said the Bureau for Economic Research (BER).

The decline was driven by a steep fall in the new sales orders index and the continued decline in the business activity index. Both of these indices are now well below the neutral 50-point mark. However, the majority of respondents indicated that sales orders and output levels were unchanged compared with the previous month rather than down. This suggests that activity may be largely flat compared with July, instead of sharply lower, noted BER.

Despite the big drop in the headline PMI, there were some encouraging signs that the deterioration may have been temporary. The employment index remained just above 50, which suggests that purchasing managers expect activity to pick up again and, in anticipation, kept employment levels steady.

Purchasing managers were the most optimistic about expected business conditions than they have been for the past 12 months, with the index measuring expected business conditions in six months’ time rising to 61.5 index points from 55.4 previously.

The second consecutive decline in the price index was likely also welcomed by manufacturers. The stronger rand exchange rate (in the first three weeks of August) and the hefty decline in the fuel price at the start of the month likely contributed to slower cost increases. However, renewed rand weakness in the final week of August, if sustained, means that upward cost pressure could return in coming months, noted BER.