Bad news for one of South Africa’s biggest employers

South African manufacturing sentiment deteriorated as a slowdown in production momentum weighed on output, and local demand came under pressure.

Absa’s Purchasing Managers’ Index, compiled by the Bureau for Economic Research, remained in contractionary territory for a third month.

The gauge fell to 45.8 in August from 46.8 a month earlier, the Johannesburg-based lender said in an emailed statement on Tuesday.

The index was largely dragged down by significantly weaker business activity, with a sub-index slumping to 40.2 from 48.8 and signalling a sharp deterioration in factory output.

“For manufacturers, this points to a sector that entered the latter part of the third quarter with considerably less production momentum than it had just a month earlier,” Absa said.

A measure of new sales orders fell to 40.3, from 44.1 a month earlier, amid lower exports and depressed local demand.

“Export sales appeared somewhat less weak during the month, suggesting that the renewed deterioration in demand was largely domestically driven,” the lender said.

“Respondents pointed to subdued consumer demand, weak confidence and particularly soft spending on non-essential goods – highlighting the pressure manufacturers continue to face from cautious household and business spending.”

The survey was conducted in August, as tensions between the US and Iran flared again after a pause in hostilities.

The conflict has placed consumers under strain, with escalating gasoline and fertiliser prices pushing up inflation and eroding discretionary spending. 

A purchasing price sub-index was unchanged at 67.2, signalling that cost pressures failed to ease further in August.

“Higher diesel and international oil prices added to costs during the month, while a stronger rand provided some relief on imported inputs,” Absa said.

“With the diesel price set to increase again in September, input-cost pressures are likely to remain elevated.”

A supplier deliveries sub-index rose to 58.6, from 55.5, with some respondents reporting container shortages, limited shipping space and renewed delays at Durban harbour.

Still, a measure of expected business conditions in six months’ time rebounded to 54.7 from 49.3, reflecting manufacturers’ view that the current weak conditions are temporary.

This is even though “the combination of subdued orders and sharply weaker production suggests that near-term conditions remain challenging,” Absa said.