South Africa’s Purchasing Managers’ Index improves – but challenges remain
The seasonally adjusted Absa Purchasing Managers’ Index (PMI) rose from 48.2 index points in September to 50 in October.
The Absa Purchasing Managers’ Index (PMI) is a monthly indicator of business conditions in the manufacturing sector.
It is compiled by the Bureau for Economic Research (BER) and is based on the Purchasing Managers Index (PMI) produced by the Institute for Supply Management (ISM) in the USA.
The headline PMI is calculated as the weighted average of the indices below.
- Business Activity (0.20)
- New Orders (0.20)
- Employment (0.20)
- Supplier Deliveries (0.20)
- Inventories (0.20)
The latest measure is slightly better than the average recorded during the previous quarter (49.6).
However, the Transnet strike and faltering global demand likely hurt exports, while persistent load-shedding capped the recovery in activity and demand.
Business activity
The business activity index rose by 9 points to 48.8 in October. It is in line with the average of this subcomponent so far in 2022.
It is a better start to Q4 than the Q3 average, which bodes well for actual manufacturing output in the year’s final quarter.
New sales orders
The new sales orders index continued mirroring the business activity movements and improved in October.
However, it remained stuck in negative terrain, signalling weak underlying demand.
Beyond the impact of load-shedding on domestic demand, exports were affected by the Transnet strike.
Slow global growth could become a bigger constraint on export growth going forward. The PMI readings from Europe point to a sharp slowdown in activity at the start of the fourth quarter.
Employment
The employment index dropped sharply in October. The index fell to its lowest level in about two years.
Given the history of this series, where sharp declines reverse in subsequent months, we need to be careful not to read too much into the drop. However, for now, this remains a worrying development.
Supplier deliveries
The supplier deliveries index inched slightly higher in October.
Given the disruptive impact on the movement of goods because of the Transnet strike, the index could easily have increased by more.
It is because the index is inverted, so a slowdown in deliveries increases the index.
Inventories
The inventories index ticked down somewhat from recent elevated levels.
The index has been a key support of the headline PMI during the second half of 2021 and 2022, as it has stayed above 50 points since July 2021.
