Optimism in manufacturing sector as PMI rises


Cape Town – The seasonally adjusted Absa Purchasing Managers’ Index (PMI) has edged above the neutral 50-point mark for the first time since May 2017.

The index, which is compiled by the Bureau for Economic Research and measures business conditions in the manufacturing sector, rose to 50.8 index points in February, up from 49.9 in January, according to survey results released on Thursday.

The researchers said in a statement that the fact that the index averaged above 50 points  for the first two months of 2018 bodes well for SA’s manufacturing sector.

The increase in the headline index was driven by solid improvements in the business activity and new sales orders indices, which together account for more than half of the PMI’s weight.

The new sales orders index rose by 2.3 points to reach 52.7 in February.

“The improvement in demand supported an acceleration in output growth, with the business activity index rising to 54.1 from 52.0 in January. Unfortunately, the employment index remained subdued despite the apparent recovery in output,” the statement read.

The researchers said the most positive outcome of the February PMI survey was that a section of the index that tracks expected business conditions in six months’ time had risen to its highest level since 2001.

It surged to 79.1 points after solid increases in December and January, which means the index is now almost 30 points above where it was in November 2017.

“The sustained rise in optimism is likely supported by continued positive global growth prospects. More important, the outlook for the local economy has also improved over recent months.

“The fact that the PMI’s implied leading indicator is also above one, with new sales orders outstripping inventory levels, is another positive sign.”

Furthermore, the purchasing price index declined further in February and is now more than 20 points below the level reached as recently as November 2017 owing to the stronger rand exchange rate and lower Brent crude oil price.

“The stronger rand means that imported raw materials and intermediate products are cheaper in rand terms.”

The researchers, however, cautioned that over the longer run, this could hurt local exporters’ competitiveness in global markets.

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