PMI inches higher but activity still restrained

03 March 2014

The seasonally adjusted Kagiso PURCHASING MANAGERS’ INDEX™ (PMI™) increased by 1.8 index points to 51.7  in February, helped by a rebound in the New Sales Orders Index. However, the Business Activity index continued to be stuck below the 50-point mark for the third month running. Abdul Davids, Head of Research at Kagiso Asset Management, says the increase in the New Sales Orders Index – to its best level since August 2013 – was due to improved global demand as the Eurozone’s manufacturing sector continued to perform strongly. “The preliminary Eurozone manufacturing PMI reading for February shows that underlying demand for manufactured goods continued to be robust, although February’s preliminary reading was slightly lower than the January level.” The headline Eurozone PMI Index reached a 32-month high in January. 

In SA, the New Sales Orders Index increased by 3.2 index points to reach 53.4, while the Business Activity Index remained stuck below the 50-point mark at 48.4 index points. “Business activity levels below 50 does not bode well for manufacturing production and the prolonged strike in the platinum sector could be having a dampening impact on activity levels,” Davids notes.

Against the backdrop of the weak levels of business activity and higher sales orders, it was surprising that the Inventories Index rose sharply to 59.6 index points from 53.6 index points in January. Davids points out that manufacturers could be stocking up ahead of further cost increases due to the weak rand exchange rate.

The Price Index soared to its highest level ever recorded since the start of the PMI series in 1999, to 95.1 index points from 89.3 in January. This was probably caused by the continued weak rand exchange rate that pushed up the cost of imported goods paid for in foreign currency. Davids notes: “current energy and fuel prices are the highest on record and these constitute a sizeable percentage of manufacturers cost bases”. 

Looking ahead, manufacturers were less optimistic about Expected Business Conditions in six months’ time. The index fell to 55.7, from 61.4 index points in January. “the decline in the expected business conditions index, together with the contraction in the leading indicator does not bode well for manufacturing production in the coming months,” Davids concludes. 

Download: february_2014_pmi.pdf