August 2, 2021
The seasonally adjusted Absa Purchasing Managers’ Index (PMI) plunged in July. This signals that the output recovery in the manufacturing sector was set back notably at the start of the third quarter. From an elevated 57.4 in June, the headline PMI suffered a record single month decline of almost 14 points, dropping to 43.5 in July. This is well below the neutral 50 level. The magnitude of the monthly decline, which dragged the PMI down to the lowest level since May 2020, was worse than during the hard lockdown in April 2020. At that stage, the SA manufacturing PMI and PMIs across the globe were (counter-intuitively) propped up by a big increase in the supplier deliveries index.
July was a particularly challenging month, with the broader economy and the manufacturing sector hit by several supply-side and confidence shocks. These include a severe COVID-19 third wave, the associated harsher adjusted level 4 lockdown restrictions for a large part of the month, as well as the unprecedented looting/arson attacks in KwaZulu-Natal (KZN) and parts of Gauteng. The riots disrupted supply chains, industrial output and the demand for manufactured goods. In addition, the manufacturing sector may also have been negatively impacted by the recent cyber-attack on Transnet, which saw operations at South Africa’s major ports temporarily grind to a halt. The July PMI reading suggests that these factors vastly outweighed the positive spillovers to parts of the manufacturing sector from robust SA mining sector activity amid elevated commodity prices.
The severe adverse impact of these events is best highlighted in the business activity and new sales orders indices of the PMI. Both indices declined dramatically in July. Indeed, excluding the unprecedented trough in April 2020 during the height of SA’s hard COVID-19 lockdown, the business activity index sank to an all-time low (series since September 1999). In the case of sales orders, excluding April 2020, one must go all the way back to early 2009 in the aftermath of the global financial crisis to find the index at the low reached in July. Both the lockdown restrictions and the riots would have hurt orders for manufactured goods. Respondents also reported a loss of export sales. With SA’s key advanced country export markets still in recovery mode, this may reflect the impact of infrastructure closures and logistical bottlenecks due to the unrest in KZN and Gauteng, as well as the Transnet IT security breach. After a terrible July, the lifting of some of the level 4 restrictions and calm returning to KZN and Gauteng should lift factory output from August. This is in line with the projections of the PMI respondents. The index measuring expected business conditions in six months rose by 5 points to 64.3 in July.
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