The Absa Purchasing Managers’ Index (PMI) fell slightly in March to 48.1 from 48.8 in February, marking the second consecutive month of decline after a hopeful start to the year.
The index is based on surveys with purchasing managers in the country’s manufacturing sector, with managers providing monthly insights into their businesses.
Absa then processes all the data to create an index, with 50 representing stability, higher values indicating increased activity, and lower levels meaning decreased activity.
After rising in January, the second straight month of decline in the index points to a deterioration in business conditions in the manufacturing sector.
Despite this, Absa said that business activity suggests that output could improve from the quarterly contraction recorded in the fourth quarter of 2022.
This viewpoint was similar to that of Nedbank in its latest GDP review, where the bank revised its first-quarter GDP outlook from a contraction to marginal growth – thus avoiding a technical recession for the economy.
On the other hand, Absa warned that load shedding continues to be a major drag on the economy.
“Domestic demand seems to be struggling, with some comments referring to local demand faltering due to load-shedding,” the group said.
“Indeed, in contrast to business activity, the new sales orders index performed worse relative to the fourth quarter. This was despite the PMI’s index tracking export sales performing well through the first quarter and rising to an almost two-year high in March.”
Of all the subindices covered in the PMI, the employment index was the lowestpointing to a bleak environment for jobs in the country.
The employment index fell for a third consecutive month to 45.4 in March. According to the latest jobs data (QES) from Statistics South Africa, the level of formal employment in the sector barely changed through 2022, and the recent PMI data does not indicate an improvement in job growth during 2023Absa said.
In a further sign that delivery times are normalising, the supplier deliveries index recorded another steep decline to reach 50.8, the lowest level since the start of the pandemic.
This is likely partly due to less constrained global supply chains, a trend also reflected in some international PMI surveys, Absa said.
This is a positive development for the sector. However, on the negative side, sustained weak demand likely also explains some of the recent downward move in South Africa.
The purchasing price index halted its recent upward trend and fell slightly in March. This was despite a slight increase in the diesel price at the start of the month and a weaker rand exchange rate (on average to the US dollar) compared to February.
However, less intense load-shedding during the second half of March would have helped lessen the costs of running diesel generators.
Respondents turned more optimistic about business conditions going forward.
“Following a sharp deterioration in February, the index tracking expected business conditions in six months’ time rose to 55.5 from 46.8 in February. This means that purchasing managers generally expect conditions to look better later this year,” Absa said.
“However, the long-term average of this index is well above the current reading, suggesting less optimism than usual.”
| Index | January | February | March |
|---|---|---|---|
| Purchasing Price | 69.3 | 78.6 | 78.1 |
| Supplier Deliveries | 57.6 | 55.3 | 50.8 |
| New Sales Orders | 49.9 | 49.4 | 48.5 |
| Business Activity | 56.0 | 45.5 | 48.1 |
| Inventories | 53.1 | 46.5 | 47.6 |
| Employment | 48.4 | 47.1 | 45.4 |
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