PMI suggests manufacturing growth remains sub-par

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PMI.jpgDespite an increase of 1.7 points to 49.1 in January, the Seasonally Adjusted Kagiso Purchasing Manager’s Index (PMI) remained below the important 50-point mark for the fifth month in a row.  This suggests that growth in the manufacturing sector continues to be subpar.

The marginal rise in the headline PMI masked sharp movements in the key PMI subcomponents. On a positive note, the seasonally adjusted business activity, new sales orders and inventory indices posted solid gains. In particular, the significant increases registered for new sales orders (+6 points) and inventories (+9.5) are encouraging.

The rise in new sales orders may be an indication of increased foreign demand for SA manufactured goods. “The apparent stabilisation in the EU economy and the weaker rand exchange rate may have helped in this regard”, said Hugo Pienaar, senior economist at the Bureau for Economic Research. Furthermore, the solid increase in new sales orders may reflect better demand from the South African mining sector as mining output recovers from the strikes in 2012Q3/Q4.

The business activity index gained 2.3 points to 49.6. January represented the third consecutive increase after the index slumped to 43.2 in October 2012 in the wake of widespread strikes.

Unfortunately, the latest PMI results also contain some worrying developments. After a more than 7 point decline in December 2012, the employment component lost a further 2.4 points in January to reach 42.3. The latest reading on the job front is the worst since mid-2011. “At the start of the year, this does not bode well for actual job creation in the manufacturing sector”, said Pienaar.

Input costs picked up for the sixth consecutive month as the PMI price index increased by 2.3 points to 82. The combination of a sustained weakening trend for the rand exchange rate through January and a higher oil price may explain the rise.

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