April PMI declines as demand begins to ease
There are indications that the Index could moderate even further, says Abdul Davids, Head of Research at Kagiso Asset Management.
The New Sales Orders Index, the largest weighted PMI sub-component, declined to 55.4 in April from 59.7 in March.
"While this still reflects robust demand for factory goods, we have seen this slowing over the last few months. This is in line with the trend we are currently seeing in Europe, South Africa’s key manufacturing export market," says Davids.
The PMI leading indicator (new sales orders as a ratio of inventories) fell to below 1 (0.96) for the first time since December 2011 – a reading below 1 indicates that inventories are too high relative to the demand for manufactured goods, explains Davids.
The index measuring expected business conditions over the next six months experienced the largest decline after losing 6.2 points to reach 56.2, while the Business Activity Index stabilised at a fairly robust level of 57.7 during April. This is indicative of sustained strong manufacturing production growth, says Davids.
The good news on the pricing front is that the Price Index declined to 71.1, its lowest level since January 2011.
However, Davids points out that the spiralling oil price poses the largest upside risk to input costs going forward. "If the oil price were to stabilise at below US$120 per barrel, we would see a sustainable moderation in factory sector input costs," he says.
At 48.8, the Employment Index remained just below the 50 point mark. Although it has been improving, this Index still points to a contraction in employment levels in the manufacturing sector.