PMI drop points to flat Q1 factory output

The South African Purchasing Managers’ Index (PMI) dropped by 1.4 index points to 50.3 in March, mainly driven by a decline in the New Sales Orders Index, which tumbled to a level equal to August 2006.

The March New Sales Orders Index fell by 6.8 index points to 46.6 from 53.4 in February.

“This was likely owed to weaker domestic demand. The demand weakness may have been exacerbated by the prolonged production stoppages in the platinum mining sector, which halted the need for supplies from specific manufacturing sub sectors,” said Abdul Davids, Head of Research at Kagiso Asset Management, sponsor of the PMI.

The decline in the March PMI index brings the average for the first quarter to 50.6, which suggest that the manufacturing sector is struggling to gain any real momentum, said Davids.

“The South African manufacturing PMI remained firmly below levels recorded in developed economies,” said Davids.

In the US, the preliminary manufacturing PMI nudged down to 55.5 in March from February’s 45-month high of 57.1. The Eurozone’s flash manufacturing PMI came in at 53.0, slightly down from 53.2 in February.

The Chinese manufacturing PMI is underperforming even South Africa, the Chinese flash manufacturing PMI fell to an eight-month low of 48.1 points, noted Davids.

On a positive note, South Africa’s Business Activity Index returned to a level above the neutral 50-point mark (after lingering below 50 points for three consecutive months), suggesting a moderate acceleration in output. The index rose to 51.0 from February’s 48.4.

The Price Index eased marginally to 93.0 points from February’s record high of 95.1. “The index remained exceptionally high and suggests considerable pressure on input costs, likely driven by the Rand exchange rate that remains substantially weaker than 12 months ago,” said Davids.

The Employment Index ticked up by 3.6 index points to 51.8, while the Inventories Index returned to January’s level after rising sharply in February, falling to 53.7 from 59.6.

The index measuring Expected Business Conditions in six months’ time fell to its lowest level since September 2013, however, Davids noted that at 54.5 index points “manufacturers are less optimistic, but still expect conditions to improve over the next few months.”

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