The Kagiso PMI suggests Q3 manufacturing weakness

01 October 2012

According to Andre Coetzee, MD of the Chartered Institute of Purchasing and Supply" The seasonally adjusted Kagiso PMI lost 4 index points in September and declined back below the key 50 point mark to 46.2". Coetzee noted that "The pullback does not bode well for actual factory sector output in Q3". Manufacturing production declined by 1% quarter-on-quarter (annualised) during Q2. 

Coetzee said "Based on the PMI, the deterioration in the local manufacturing sector has been stark in recent months. Following an average level of 54.7 points during the first five months of 2012, the PMI lost ground and only averaged 48.9 between June and September 2012. After still averaging 51.8 during Q2, at 49.1 the index dipped below 50 (on average) in Q3."

The domestic PMI is now on par with the trends in the factory sectors of SA's key trading partners. The official September PMI reading for China, which was released today, is 49.8 and the initial reading for the EU remains below 50.

Coetzee comments, "Concerns about domestic manufacturing production were reinforced by the business activity index, which fell by a significant 7.6 index points to 43. One has to go back to July 2011 - a period when the manufacturing sector was hit by widespread industrial action - to find the index at a weaker level." The activity sub-index was responsible for almost half of the overall PMI decline. Business activity measured 48.1 for Q3 as a whole, down from 53.6 during Q2 and 58.9 in the first three months of the year. The non-seasonally adjusted business activity index actually posted a small increase to 50 in September from 48.9, but a large seasonal factor weighed on the adjusted number.

New sales orders remained soft, losing 0.7 index points to 46.2. Another important feature of the September PMI was that the price index increased further after the 8.2 index point jump recorded in August. The price component rose by another 4.9 points to 75.8 - the highest level since January 2012. Coetzee added that as expected, "The August increase to back above 50 for the PMI employment index proved to be short-lived. The index lost 4.5 index points to 46.5."

On a more positive note, following three consecutive months where purchasing managers downgraded their outlook for future business activity, the expected business conditions index gained 2.6 points to 55.5 during September. Coetzee concluded saying "The somewhat more upbeat prospects were corroborated by the PMI leading indicator, which rose from 0.90 in August to just below 1 at 0.99. The leading indicator measures the ratio between new sales orders and inventories - any number below 1 indicates that inventories exceed the demand for manufactured goods, which normally does not bode well for factory sector production."


Download: pmi_oct_2012_copy2.pdf