PMI drops by 2.6 points

The seasonally adjusted Barclays Purchasing Managers’ Index (PMI) fell by 2.6 index points to 45.9 in October from a downwardly revised 48.5 points in September.

The current level is at its worst since January and well below the neutral 50-point mark, which suggests that the manufacturing sector experienced a lacklustre start to Q4 2016.

Indeed, four out of the five main PMI subcomponents declined on a month-on-month basis, with only the index measuring suppliers’ performance ticking up slightly in October.

Erasing some of the gains made in September, the new sales orders index fell by 2.8 points to 44.5 in October. The deterioration was despite some respondents still noting improved export growth during the month.

Amid persisting weak (domestic) demand conditions, the business activity and employment indices also deteriorated. At 43.5 and 45.1 points respectively, these two indices are well below the neutral 50-point mark.

Unfortunately, manufacturers’ sentiment towards future business conditions turned notably more pessimistic. After three months of increases, the index tracking expected business conditions in six months’ time fell by 13.2 points – the third biggest drop on record – to 50.6 points in October.

With global economic prospects looking up in the second half of 2016, it could be that renewed concern about the future of Finance Minister Pravin Gordhan, increased talk about a possible credit rating downgrade for SA at the end of the year, as well as #FeesMustFall protests affected manufacturers’ sentiment.