PMI points to steady demand but slowing activity

15 January 2014

Abdul Davids, Head of Research at Kagiso Asset Management points out that South Africa’s PMI™ is now below its main trading partners. "Activity in the Eurozone rose at its fastest pace in two and a half years in December and is now comfortably above the key 50-index level,” he says. “In the US, the ISM manufacturing PMI declined somewhat, but at 57, remains at a fairly high level.”

In South Africa, the New Sales Orders Index rose for the third consecutive month to reach 51.8 points. However, the average reading for the fourth quarter remains the lowest for the year. The Business Activity Index fell 4.7 points to 49.3 in December, suggesting a slowdown in production growth. The index’s fourth quarter average is at 52 and the readings for October and November actually indicate a relatively strong rebound in production after the third quarter slump caused by the prolonged vehicle manufacturing strike.

The Employment Index fell from a relatively high level of 50.8 to 45.8 in December. According to Davids, this deterioration was expected given that the manufacturing sector has struggled to create sustained employment growth since the 2008/09 recession. After declining for four consecutive months, the Price Index increased from 77.8 to 80.1 points as the weak rand placed upward pressure on the prices of imported input products like fuel.

Despite the mixed news, purchasing managers remained relatively optimistic about the first half of 2014. While the index measuring expected business conditions in six months’ time declined slightly, at 57.9 points, it remains at a high level. This sentiment was also reflected in the PMI leading indicator, which rose above 1 for the first time since August 2013. This indicates that inventories are below expected demand, which generally bodes well for future production in the manufacturing sector.

Download: december_2013.pdf