December 9, 2020
The Absa Purchasing Managers’ Index (PMI) (link to attached PMI Report – November 2020.pdf) declined to 52.6 index points in November from the solid 60.9 points recorded in October. The decline comes after three consecutive upward moves and brings the index to the lowest level since July 2020. While still signalling an improvement in business conditions, the drop suggests that the manufacturing sector’s recovery is starting to lose momentum. This was to be expected as output levels for many subsectors are nearing pre-pandemic levels and will need sustained demand growth to fuel a further output expansion. In this regard, it was worrying to see the new sales orders index dip back below the neutral 50-point mark for the first time since May. This was in part driven by a renewed decline in export sales, which could possibly be linked to lower activity in Europe due to the renewed COVID-19 lockdowns. This, as well as concerns about coronavirus developments in South Africa, likely explains why purchasing managers turned less positive about business conditions going forward. The indicator tracking business conditions in six months’ time dipped for a second month to 52.7 index points and is now about 12 points below the level of just two months ago. While positive news regarding vaccine developments may result in an improved global growth outlook over the medium term, the next six months remain highly uncertain.
In addition to the new sales orders index, the other four components of the headline PMI also declined relative to October. However, encouragingly, both business activity and inventories still signalled expansion. Even so, the fact that both indices fell by about 10 points suggests that the pace of the recovery has slowed significantly. Furthermore, the employment index dipped lower in November. Unlike the other indices, employment never breached the neutral 50-point mark in its recovery from the lockdown-induced slump in April. The supplier deliveries index remained high in November, suggesting that supply chain and product availability are still constraints.
Finally, the purchasing price index came down from a two-year high reached in October. The deceleration in cost pressure was likely driven by the, on average, stronger rand exchange rate which lowers the rand-cost of imported raw materials and intermediate goods.
Please note that the December 2020 PMI will be released on 8 January 2021. Due to the December holidays, we don’t release it on the first working day of the month as usual.
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