Absa CIB Admin
Absa Purchasing Managers’ Index measures second consecutive large fall as individual indices continue to decline.
The seasonally adjusted Absa Purchasing Managers’ Index (PMI) declined to 41.6 index points in September, down from 45.7 in August.
This was the second consecutive large fall in the PMI and brought the index more than 10 points below a recent high of 52.1 points reached in July.
In August, when we released the July print, we did caution that given weak underlying demand conditions, the robust July reading was unlikely to be sustained.
The September decline in the headline PMI was led by a sharp drop in three of its five subcomponents: new sales orders, purchasing inventories and business activity. All three indices fell by more than 6 points to reach levels around 40 points.
In contrast, providing some support to the PMI, the supplier deliveries subcomponent edged back above 50 points after dropping below that level in the previous month.
Employment index rises, but remains weak
The employment subcomponent rose slightly, but at 39.6 points, remains at a very weak level.
Besides sustained weak domestic demand conditions, the poor South African manufacturing PMI comes against a backdrop of growing concerns about the health of the global economy and, in particular, South Africa’s trading partners in Europe.
The preliminary manufacturing PMI reading for the Eurozone fell to the weakest level in more than seven years in September, with the German PMI dropping to its lowest level in more than a decade.
It is unlikely that the South African manufacturing sector will improve on a sustained basis at a time when our key trading partners are struggling. Indeed, while the September PMI already paints a dismal picture of current conditions, respondents expect the environment to worsen further going forward.
The index tracking expected business conditions in six months’ time, declined for a fourth month to 46.1 index points in September.
The purchasing price index increased by 3.1 points to 76.7 points. With purchasing prices increasing at a faster rate than before, manufacturers’ profitability levels are likely under increased pressure as the sustained weakness in demand suggests little pricing power to pass on the higher costs to consumers.
This article was originally published here