The Purchasing Managers’ Index (PMI) came in at 53.0 index points in January 2023, slightly down from 53.1 in December 2022.
The PMI is an economic activity index based on a survey conducted by the Bureau for Economic Research (BER) and sponsored by Absa.
The monthly surveys are conducted under a representative group of purchasing managers in the South African manufacturing sector.
The managers are asked about industry conditions under the following categories: business activity, new sales orders, employment, company inventories, supplier deliveries, and purchasing prices.
A decline in the employment and new sales orders indices to levels below 50 was offset by higher activity and inventories returning to positive terrain.
Most encouraging was the significant and surprising improvement in the business activity index relative to the previous month.
This was despite many respondents still flagging load-shedding as holding back production and new sales orders dipping lower in January.
Should this translate into actual production growth, it would be a promising start to the year for the struggling sector.
Continued activity growth would require a sustained improvement in demand and, most likely, a move to less intense stages of load-shedding.
In this regard, the expected business conditions index increase was encouraging.
The index tracking expected business conditions in six months rose by 8.9 points to 63.8 – the best level since early 2022.
Given the poor potential for the domestic economy to accelerate demand growth for factory goods, this was likely driven by better expectations for the global economy.
There are more signs of the European economy avoiding a near-term recession and the reopening of the Chinese economy, which further boosts global demand.
Following a poor ending to a dismal year, the business activity index surged higher in January.
While encouraging, it remains to be seen whether this can be sustained in the coming months. Indeed, many of the respondents flagged load-shedding as a drag on production.
New sales orders
The new sales orders index had proved surprisingly resilient in the final two months of 2022, but the January reading points to no change in demand in the first month of 2023.
As export sales remained unchanged at a fairly high level, the deterioration was likely caused by weaker domestic demand.
Following an unexpected surge to 54.3 in December, the employment index dipped back below the neutral 50-point mark in January.
This suggests that any improvement in staffing levels at the end of the year was temporary.
The inventories index more than recovered from December’s sudden drop to below the neutral 50-point mark. The index rose by 6.8 points to its best level since August 2022.
The supplier deliveries index declined to the lowest level in two years – albeit still remaining well above the neutral 50-point mark, which was unusual prior to the pandemic.
The fall could have been due to more efficient supply chains resulting in faster delivery times (as the index is inverted, so faster delivery times result in a decrease). It could also be linked to the downtick in new sales orders, with less demand for inputs resulting in more responsive deliveries.
Following a steady decline, the purchasing price index booked its biggest increase since March 2022. That said, the index remains low relative to its long-term average.
The uptick in costs could possibly be linked to measures to offset the impact of load-shedding on production. The rand exchange rate was (on average) slightly stronger to the dollar compared to December, but the Brent crude oil price was higher. The resulting uptick in the fuel price today will put further pressure on costs, especially for businesses using diesel generators.