PMI off to slow start for 2014 as activity remains subdued

03 February 2014

Amid persistent challenges, the seasonally adjusted Kagiso PURCHASING MANAGERS’ INDEX™ (PMI™) started the year unchanged at 49.9 points.

In the January PMI both the Business Activity and New Sales Orders indices weakened as demand remained fairly subdued. The Business Activity Index fell for the second consecutive month to reach 48 – its lowest level since March 2013. Abdul Davids, Head of Research at Kagiso Asset Management said “Business activity at such a low level is not conducive to actual manufacturing production growth in the first quarter of 2014,”

In contrast, the Eurozone’s manufacturing sector was in much better shape than expected. The preliminary PMI reading showed that underlying demand for manufactured goods in the Eurozone was at its strongest level in nearly three years, lifting the headline index to a 32-month high of 53.9 points.

The deterioration in the Business Activity and New Sales Orders indices was balanced by a more pronounced improvement in Employment and Inventories. After declining by five points in December, the Employment Index rose to 50.7 points in January. The index has been hovering around the 50-point mark for a few months and according to Davids, this may signal a stabilisation in labour demand after continued job shedding following the 2008/09 recession.

The Price Index surged from 80.1 in December to 89.3 in January – its highest level since mid-2008. “This sharp increase is likely due to the weaker rand elevating the costs of imported input goods,” says Davids. “Increased input prices will place pressure on manufacturers’ profitability levels and will also filter through to higher prices for consumers.”

The Inventories Index rose from 46 points to 53.9 in January. The rebound in inventory levels without an accompanying improvement in new sales orders does not generally bode well for production going forward. However, Davids points out that manufacturers may have stocked up in anticipation of further input price increases.

Despite tough conditions, manufacturers were still optimistic as the index measuring Expected Business Conditions in six months’ time rose by 3.5 points to 61.4. “Given that local demand is likely to remain relatively weak, manufacturers may be expecting a boost to exports due to improved demand from the Eurozone and a possible competitive edge from the weak rand,” says Davids. However, he cautions that the combination of higher inventory levels and weaker orders does not bode well for future production.

Download: pmi_february_2014.pdf