Absa Purchasing Managers’ Index continues decline
The Absa Purchasing Managers’ Index (PMI) declined by 1.6 index points to 47.6 in June 2023 – its lowest level since mid-2021.
For the first time since 2018, all five subcomponents used to calculate the headline PMI were below the neutral 50-point level, pointing to a worsening of business conditions in the sector.
A key drag on the sector seems to come from weak demand, with the new sales orders index edging down once again as the decline in export sales deepened and domestic demand remains under pressure. This index declined from 47.5 in May to 45.6 in June.
On a more positive note, the business activity index improved relative to May, although it remained below the neutral 50-point mark for a fifth consecutive month. The index rose from 47.7 to 48.9 in June.
The improvement was on the back of significantly less daytime load-shedding during the month, with weak demand hampering a bigger recovery.
For the second quarter, the business activity index came in slightly lower than the first-quarter average, but this is solely on account of a high January reading.
Broadly speaking, the level of the business activity index suggests momentum in official production data remained very subdued in the second quarter.
Along with the improvement of business activity in May, there was also somewhat better news on the cost front, as the purchasing price index declined to the lowest level since the start of the year. The index declined from 77 to 71.3.
A stronger rand exchange rate – relative to the previous month – and a drop in the fuel price at the start of the month likely contributed to the moderation in cost pressures.
Another notable development in the June survey was the turnaround in forward-looking sentiment.
The index tracking expected business conditions in six months’ time rose from an extremely depressed 43.7 to 52.4 in June.
While the current level remains well below the long-term average, this at least signals that purchasing managers expect conditions to look better by the end of the year instead of worse.
Business activity
Significantly less (daytime) load-shedding saw business activity improve in June to its best level since January 2023. Despite this, amid continued weak demand, production failed to rise back to growth territory.
New sales orders
The new sales orders index lost some of May’s gains and fell back to 45.6 in June. Respondents reported a worsening
in export sales, while domestic demand is likely also under pressure amid rising borrowing costs, sticky inflation and other headwinds.
Employment
Following three months of little change, the employment index rose by 2.3 index points to 47.9 in June. The index
has been below the neutral 50-point mark through the first half of 2023.
Inventories
Following a surge in April, the inventories index declined for a second month and returned to roughly Q1’s average level.
Supplier deliveries
The supplier deliveries index edged below the neutral 50-point mark for the first time since mid-2018. The decline signals faster deliveries of raw materials and intermediate goods, which, in pre-pandemic times, was a sign of weak demand in the sector.
During the pandemic, the index surged and stayed high through 2021 and 2022, as global supply chains and local logistical issues strained delivery performance. However, recent surveys suggest that global supply chains are working much better, which, in addition to weaker demand, likely contributed to a decline in this index.
Note that this index is inverted, so faster deliveries result in a lower index value and thus detract from the headline PMI.
Purchasing prices
Following an uptick in the purchasing price index in May on the back of a significantly weaker rand exchange rate, the index declined to the lowest level since the start of the year in June.
A stronger rand exchange rate – relative to May – and a decline in the fuel price at the start of June likely contributed to the moderation in price pressure.
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