PMI indicator does not bode well for output growth

| 0 Comments
PMI_July2017.jpgThe seasonally adjusted Absa’s Purchasing Managers’ Index (PMI) declined from 51.5 index points in May 2017, to 46.6 index points in June 2017. The Bureau of Economic Research (BER) said that “the deterioration was broad-based, with four of the five main subcomponents moving lower, compared with May.” The BER added that “the recent volatility is probably driven – or at least exacerbated – by continued uncertainty about the outlook for the domestic economy.” The uncertainty likely results in more erratic domestic orders, which may filter through to more volatile output patterns on a month-to-month basis.

BER stated that “several domestic releases, such as the economy having entered a technical recession, and business confidence plunging to recession low levels - as well as continued uncertainty on the political front during these months - may explain why respondents were notably more pessimistic about business conditions going forward.” In addition, the manufacturing sector is also bracing itself for a possible strike in the steel and engineering sectors, if a wage agreement is not reached soon. As such, the index forecasting expected business conditions six months ahead, fell from 61.4 to 50.0 in June. This is the lowest level since February 2016.

While the PMI paints a picture of subdued conditions in the manufacturing sector, the Purchase Price Index (PPI), indicates that manufacturers at least reported a deceleration of upward cost pressures. The PPI declined by 7 points to reach 61.3 index points in June – the lowest level since October 2016. The decline came on the back of an average $4 per barrel drop in the brent crude oil price, as well as the stronger Rand exchange rate, which traded below R13/$ for most of the month. The stronger Rand lowers the import cost of raw materials and intermediate goods used in the local production process. The notable fuel price decline at the beginning of July, is expected to lead to a further deceleration of upward cost pressures.

The Business Activity Index has been one of the PMI’s most volatile indices of late. The index slumped in April, before recovering in May, slipping lower again in June – but remaining much higher than in April. While Statistics South Africa data does not fully correspond to the swings in the index on a month-to-month basis, this data is also volatile. For example, since September 2016, the year-on-year percentage change in manufacturing output has alternated between positive growth one month, to negative growth the following month. Overall, manufacturing output was down by 1.8% year-to-date in April, and the average business activity index for May and June (48.9 points), suggests that this weakness is likely to persist.

The erratic nature of new sales orders is a big driver of the volatility in output. The average reading of 47.1 points for the second quarter, suggests that overall demand was under pressure. Not only does domestic demand remain weak, but respondents were also less optimistic about export orders. The stronger Rand exchange rate may weigh on manufacturers’ competitiveness in international markets.

In contrast to the swings in output, the employment index remained more or less unchanged at 47.1 index points in June. The index therefore stayed below the neutral 50-point mark, signalling a decline in employment. The inventories index ticked lower to 48.9 index points in June, from 49.7 in May. This marks the third consecutive month that the index stayed stuck in negative territory. Despite this, the index rose above the new sales orders reading -which means that the PMI leading indicator moved back below one. This usually does not bode well for output growth going forward.

Leave a comment


 

 

Career opportunites

Planner

  • <500 000 Gauteng Operations, Planning & Inventory Supply Chain
Are you looking for new career opportunities as

Procurement Specialist

  • >500 000 Gauteng Procurement Officer / Specialist Strategic Sourcing Supplier / Business Development
As a specialist Supply Chain recruiter, I am

Logistics Controller

  • <500 000 Gauteng Logistics & Warehousing Procurement Officer / Specialist
Seeking dynamic up and coming candidates looking for

Supply Chain Manager

  • >500 000 Permanent Procurement Management Supply Chain Western Cape
As a specialist Supply Chain recruiter, I am

Business Process Specialist

  • <500 000 Gauteng Procurement Consultant Procurement Officer / Specialist Supply Chain
A company within the financial services sector is

LOC Procurement Manager

  • Gauteng Permanent Procurement Management Procurement Officer / Specialist
Your Responsibilities: Job Purpose To be the interface ...More

Account Manager

  • >500 000 Procurement Officer / Specialist Supplier / Business Development Western Cape
Key Performance Areas:• To ensure that all aspects

Consultant

  • >500 000 Gauteng Procurement Consultant Strategic Sourcing Supply Chain
Key Performance Areas:• You'll be concerned primarily with

Commercial Buyer

  • <500 000 Buyer Contracts Procurement Officer / Specialist Western Cape
A well-known Mining company is seeking the services

Technical Buyer

  • <500 000 Buyer Contracts Procurement Officer / Specialist Western Cape
A well-known Mining company is seeking the services

Business Development Executive

  • >500 000 Gauteng Supplier / Business Development
A retail solutions company is seeking a New

Financial Manager

  • >500 000 Contract Operations, Planning & Inventory Procurement Management Western Cape
Looking for an unemployed CA (SA) in Cape

Chief Financial Officer

  • >500 000 Gauteng Operations, Planning & Inventory Procurement Management
An exciting opportunity exists for a CFO with

Procurement Consultant

  • >500 000 Gauteng Procurement Officer / Specialist Strategic Sourcing
Key Performance Areas: A profound knowledge of sourcing

Commodity Specialist: IT

  • >500 000 Commodities Gauteng Procurement Officer / Specialist
Key Performance Areas:• Effectively applies acquired technical/functional skills

Senior Consultant

  • >500 000 Gauteng Projects / Category Management Supplier / Business Development
Key Performance Areas:• Adheres to best practice processes

Logistics Manager

  • >500 000 Gauteng Logistics & Warehousing Operations, Planning & Inventory Procurement Management
Key Performance Areas:• Manage warehousing and distribution 3PL's

Head of Franchise Network

  • >500 000 Contracts Operations, Planning & Inventory Western Cape
The opportunity to work for a multinational retail

National Driver Manager

  • >500 000 Analyst Contracts Logistics & Warehousing Operations, Planning & Inventory Western Cape
The opportunity for an extraordinary individual to join

Commodity Specialist: Industries

  • >500 000 Commodities Gauteng Procurement Officer / Specialist
Key Performance Areas:• Under the guidance of the