November 4, 2021
The seasonally adjusted Absa Purchasing Managers’ Index (PMI) lost further ground in October, declining to 53.6 from a downwardly revised 54.7 in September. As was the case in September, the business activity and new sales orders indices lost the most ground in October. At least two key developments in October help to explain the almost 4-point drop (to 46.1) in the business activity index. These are the three-week strike in the steel and engineering sector and the return of Eskom load-shedding for notable periods during the month. Seen in isolation, these adverse events had the potential to push the business activity index, orders and the overall PMI even lower.
However, there was also an important countervailing force in October. The move to Level 1 lockdown restrictions and the sharp decline in new domestic COVID-19 cases in recent weeks to below the trough of new infections reached before both the second and the third wave has facilitated increased mobility. This is likely to have supported consumer spending and may have shielded the manufacturing sector somewhat. This is likely to have been particularly relevant in manufacturing subsectors that were not directly or indirectly impacted by the Numsa strike in the steel sector. Even so, the almost 5-point decline in the new orders index to below the neutral 50-point mark suggests that the demand for manufactured goods suffered a meaningful knock in October. Respondents reported slightly improved export sales in October, emphasising that it was domestic constraints that weighed on the demand for manufactured goods.
With the demand for and the output of manufacturing goods under pressure in October, it is no surprise that the employment indicator remained stuck below the dividing line of 50. Moving to price pressures: After forestalling the acceleration in the producer price index (PPI) for final manufactured goods in September, the PMI purchasing prices indicator fell back slightly in October. With a large fuel price hike on the cards for November, the reprieve on input cost pressures is likely to be temporary.
Looking forward, respondents remained upbeat about an improvement in business conditions over the next six months.
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