PMI increase suggests improving manufacturing conditions

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AbdulDavids.jpgThe seasonally adjusted Kagiso Purchasing Managers' Index (PMI) posted a robust increase in February, moving above the key 50 point mark for the first time since August 2012.  Registering its second consecutive increase, the index rose 4.5 points to 53.6.

A continuation of the upward trend in March will bode well for actual manufacturing production in 2013Q1, said Abdul Davids, Head of research at Kagiso Asset Management.

The new sales orders index indicated a strong demand recovery in February, increasing by 9.3 points to 60.2. The index has increased by 15.3 points over the past two months, reaching its highest level since February 2012.

Tentative indications of an improvement in the EU and US economies at the start of 2013 may have contributed to the increased demand for manufactured goods, said Davids. He added that the Rand's weaker exchange rate since the start of the year may also have improved the short-term price competitiveness of local producers on international markets.

The business activity index gained 2.6 points to 52.2.

Meanwhile, input costs continue to accelerate as factory sector employment remains weak.

The PMI price sub-index registered its seventh consecutive increase to 86, its highest level since March 2011.

"Increasing oil prices coupled with a weaker currency may explain the further rise in input costs," said Davids. He welcomed the less-than-expected increase in the electricity tariff hikes over the next five years - Eskom was granted an 8 per cent increase rather than the 16 per cent it requested.

The employment sub-index gained 3.4 points to 45.7. While this is the first increase since November last year, the index still remains significantly below its pre-crisis high of 60.6 index points recorded in August 2007.

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