The Absa Purchasing Managers’ Index (PMI) saw a slight fall in March to 48.1 index points – the second consecutive month the index has signalled a deterioration in business conditions in the manufacturing sector.
The PMI is an economic activity index based on a survey conducted by the Bureau for Economic Research (BER) and sponsored by Absa.
March’s PMI is slightly down from the 48.8 index points recorded in February and a massive decrease from the 53 recorded in January.
Domestic demand in the country seems to be struggling, with some comments in the survey referring to local demand faltering due to load-shedding.
This weak demand can be seen in the new sales orders index, which performed worse relative to the fourth quarter, despite the PMI’s index tracking export sales performing well through the first quarter and rising to an almost two-year high in March.
More hope can be found in the performance of the business activity index through the first quarter of 2023, which suggests output could improve from the quarterly contraction recorded in the fourth quarter of 2022.
A further sign that delivery times are normalising can be seen in the supplier deliveries index, which recorded another steep decline to reach 50.8.
This is the lowest level since the pandemic’s start and is likely partly due to less constrained global supply chains.
This is a positive development for the sector. However, on the other hand, sustained weak demand likely also explains some of the recent downward moves in South Africa.
The survey also recorded a slight fall in the purchasing price index in March, signalling an end to its recent upward trend.
This decrease was despite a slight increase in the diesel price at the start of the month and a weaker rand exchange rate (on average to the US dollar) compared to February.
However, less intense load-shedding during the second half of March would have helped lessen diesel generator costs.
Survey respondents are also more optimistic about business conditions going forward. After deteriorating sharply in February, the index tracking expected business conditions in six months’ time rose to 55.5 in March from 46.8 in February.
This increase means purchasing managers generally expect conditions to look better later this year.
However, the long-term average of this index is well above the current reading, suggesting less optimism than usual.
The business activity index increased in March after falling sharply in February. Due to a strong start to the year
(also reflected in a solid monthly uptick in official manufacturing production during January), the average for
the business activity index in Q1 is about two points above Q4’s average. This suggests manufacturing output may
improve in Q1 following the quarterly contraction recorded in Q4.
New sales orders
The new sales orders index had a worse quarter compared to Q4. The index pointed to declining demand (although the pace of deterioration was modest) throughout the entire quarter. Some comments referred to local demand struggling due to load-shedding.
The employment index fell for a third consecutive month to 45.4 in March. According to the latest jobs data (QES)
from Statistics South Africa, the level of formal employment in the sector barely changed in 2022, and the recent PMI data does not indicate an improvement in job growth during 2023.
The inventories index in March did not recover most of February’s losses and remained stuck below the neutral 50-point mark for a second month.
The supplier deliveries index saw another steep decline and reached 50.8 in March – the lowest level since the start of the pandemic. This is a positive development for the sector but, on the negative side, sustained weak demand likely also explains some of the recent downward moves in SA. This is because the index is inverted.
Pre-Covid, when supply chain issues did not have such a bearing on the index, faster deliveries tended to be accompanied by weak demand conditions. To capture this, faster deliveries were seen as an adverse development and reflected in a decline of the index that subtracted from the headline PMI.
The purchasing price index halted its recent upward trend and ticked down slightly in March, despite the diesel price increase seen in the month. The lower Brent crude oil price could have alleviated some pressure on petrochemicals costs.