PMI indicates manufacturing stabilised in April, but at a depressed level

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Headwind_100.jpgThe seasonally-adjusted Purchasing Managers' Index (PMI) rose by 2.2 points to reach 47.2 index points in April. This was the first increase after three months of decline.

Remaining below the neutral 50-point mark, the PMI is more or less in line with the average recorded in Quarter 1 of 2019. "This means that factory conditions stabilised at a fairly depressed level at the start of Quarter 2", said the Bureau for Economic Research (BER) in a statement.

The major sub-components of the PMI paint a mixed picture of underlying conditions.

The only index to come in above the neutral 50-point mark was the index tracking supplier performance, which reached 53.4 in April.

The Business Activity and New Sales Orders Indices recorded notable increases in April, but both remained in contractionary terrain below the neutral 50-point mark.

The Business Activity Index increased by 7.9 points in April to reach 49.6. The index is now well above the average of 44.6 recorded in Quarter 1 of 2019, which points to improved production at the start of Quarter 2.

After remaining virtually unchanged at a very subdued level in March, the New Sales Orders Index rose by 4.9 points to 47.3 in April. "Some respondents reported an improvement in export orders which may have supported overall demand, providing a boost to output", noted BER. Nonetheless, despite the almost 5-point improvement, the New Sales Orders Index remained below the neutral 50-point mark for a fourth consecutive month.

In contrast, the Inventories Index fell for a second consecutive month in April, down 7.6 points to reach 42.5. The index is now more than 10 points below a recent high reached in February 2019 (52.8) and is at its lowest level since October 2018.

The Employment Index also moved lower to reach 41.9, which is 4.5 points below the average recorded during Quarter 1 of 2019. "The index failed to rise above the neutral 50-point mark since mid-2016; sustained employment creation in the manufacturing sector is likely to remain absent without a meaningful improvement in demand and activity levels", noted BER.

Respondents turned slightly more optimistic about business conditions in six months' time. The index tracking expectations rose to 62.3 points in April. The lack of load shedding during the month may have supported the slight improvement in sentiment.

The Purchasing Commitments Index declined for a second month to reach 40.8 in April. This is its lowest level since August 2018.

The Purchasing Price Index declined slightly compared with March. The deceleration in cost increases may have been supported by the slightly stronger Rand exchange rate. Brent crude oil prices, however, rose during the month. Fortunately, the rise in international diesel prices was countered by the stronger Rand, which means the local diesel price remained unchanged in May.

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