The Absa Purchasing Manager’s Index (PMI) rose in April for the first time in two months. However, the index is still below the neutral 50-point mark.
The PMI is an economic activity index based on a survey conducted by the Bureau for Economic Research (BER) and sponsored by Absa.
April’s PMI stands at 49.8 index points – a considerable increase from the 48.1 index points recorded for March. However, business activity and new sales orders worsened relative to March.
The headline PMI for April would have been worse had it not been for a notable improvement in the inventories index, which reached its highest level since mid-2022.
The rapid rise in stock levels of materials and goods used in the production process seen in April could have been caused by improved deliveries of goods due to more efficient supply chains.
Weaker demand for final goods or disruptions to the production process (due to load-shedding) could also have resulted in inventories of input products being higher.
This explanation would correlate with business activity (output), which edged lower in April to 47.6 index points.
On the demand side, new sales orders moved down more notably than output, reaching its worst level since September 2022. The index declined to 44.3 in April from 48.5 in March.
The rise in PMI did not seem to inspire hope, however, as the index tracking expected business conditions in six months’ time declined from 55.5 to 51 in April. This means purchasing managers only see a marginal improvement in future business conditions.
This pessimism could be attributed to the expectation of a harsh winter in the face of continued load-shedding and uncertainty about the strength of global demand.
However, there is hope in the form of potentially reduced pressure on costs that can be expected for the rest of the year. Input prices will likely not come down, but the significant annual cost increases businesses face in 2022 should become less intense through 2023.
The business activity index had a poor start to Q2 2023. The current level is more or less in line with the Q4 2022 average when the sector contracted and deducted from GDP growth. This was largely attributed to load-shedding hurting production, but weaker orders likely also weighed on output.
New sales orders
The new sales orders index has been just below the neutral 50-point mark since the beginning of 2023 and moved down even further at the start of Q2. Export sales remained in positive terrain in April but weakened relative to February and March.
The employment index stayed unchanged in April. Without a sustained rise in production and demand, a marked improvement is unlikely.
The inventories index increased significantly in April and reached its highest level since mid-2022.
The supplier deliveries index grew slightly in April but remains low compared to readings since the onset of the pandemic.
This is likely due to more efficient global supply chains resulting in faster raw materials and intermediate goods deliveries.
Faster deliveries result in a decline in the index (and detract from the headline PMI) because pre-Covid-19, more rapid deliveries were often caused by weaker demand conditions.
Despite a sharp rise in February, the purchasing price index moved lower for a second month in April.
The decline in the diesel price at the start of the month, with a further drop expected soon, likely helped relieve some of the upward pressure on costs.