Absa PMI increases for first time in two months
The Absa Purchasing Managers’ Index (PMI) rose by 2.8 index points to 48.2 in November, marking the first increase following two months of a decline in the headline index.
However, the index still failed to return to positive terrain, and the business activity and new sales orders indices point to declining activity and demand, albeit at a slower rate than before.
The business activity index rose by 5.7 points to 46, while new sales orders booked an even bigger 6.9-point increase in November to 46.6 points.
While these solid improvements encourage developments and point to some recovery in underlying demand filtering through to better activity, there are some worrying signs in the survey results.
These include the fact that higher activity did not filter through to the employment index, which remained largely unchanged at a low 41.1 index points in November.
Another concern is that the congestion at South Africa’s ports seemingly results in a slower delivery of supplies.
Respondents note that the unavailability of inputs required could hurt production abilities and push up costs.
Exports were also under pressure. Worryingly, it seems like it will take at least a few months for the disruptions at the harbours to clear up, which means that this could have a lingering negative impact on the sector.
Indeed, the expected business conditions index declined further in November and is now at its weakest level since the strictest months of South Africa’s Covid-19 lockdown in 2020.
Following a significant 12.2-point decline in October, the index lost a further 2.4 points to reach 41 in November.
This means that purchasing managers expect business conditions to deteriorate in six months.
Beyond issues with logistics, the recent ramp-up in the intensity of load-shedding, following some weeks of respite, may also have depressed forward-looking sentiment.
There was some good news on the cost front. The purchasing price index continued its downward trend and eased to 61.5 index points in November.
This is the lowest level since early 2018 and suggests that after a brief reacceleration in price pressure earlier this year amid a sharply weaker rand exchange rate, the moderation continued through the year’s second half.
Business activity
Following two months of steep declines, the business activity index recovered some of these losses in November.
The index rose to 46, still stuck in contractionary terrain for a 10th straight month. While demand improved somewhat in November, the ramp-up in the intensity of load-shedding towards the end of the month may have curtailed activity growth.
New sales orders
An encouraging development was the solid improvement in the new sales orders index in November.
Following a few months of signalling very depressed underlying demand, the index rose to the best level since early this year.
However, it still points to weakening demand, but the rate of the decline has slowed.
Employment
Despite an uptick in activity, there was little change in the employment index.
The index has remained stuck below the neutral 50-point mark through 2023.
Official jobs data also confirms that the sector shed jobs through the year’s first three quarters.
Inventories
The inventories index declined for a third consecutive month to 42.8 in November.
This is the lowest level since mid-2021. This might be linked to the worsening of supplier deliveries performance due to congested ports.
Supplier deliveries
The supplier deliveries index rose further and reached the highest level since early 2022.
This was likely driven by local harbour issues delaying the delivery of supplies.
Worryingly, respondents commented how these delays are now starting to impact production and could filter through to higher costs.
Purchasing prices
The purchasing price index continued its downward trend and eased to 61.5 index points in November.
This is the lowest level since early 2018 and suggests that after a brief reacceleration in price pressure earlier this year amid a sharply weaker rand exchange rate, the moderation continued through the year’s second half.
The decline in domestic fuel prices next week should provide some further relief on the cost front and could
alleviate some pressure on manufacturers relying on diesel generators during the recent higher stages of load-shedding.
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