The seasonally adjusted Absa Purchasing Managers’ Index (PMI) rose to 49.8 index points in April 2023 from 48.1 in March. Despite the improvement, the index failed to edge back above the neutral 50-point mark as business activity and new sales orders worsened relative to March. Indeed, the headline PMI would have deteriorated further if not for a significant improvement in the inventories index. The underlying survey results suggest that the sector experienced another tough month at the start of the second quarter amid intense load-shedding hurting output, and demand remaining under pressure.
The inventories index surged to its highest level since mid-2022 in April. While we would caution against reading too much into a single month’s movement, the rapid rise in stock levels of materials and goods used in the production process could have been caused by improved deliveries of goods on the back of better working supply chains (which would gel with the recent move in the PMI supplier deliveries index). In addition, or perhaps alternatively, weaker demand for final goods or disruptions to the production process (due to load-shedding) could also have resulted in inventories of input products being higher. Indeed, business activity (output) edged lower in April to 47.6 index points. On the demand front, new sales orders moved down more decidedly than output and reached the worst level since September 2022. The index declined to 44.3 from 48.5 in March.
Looking forward, purchasing managers now only see a marginal improvement in future business conditions. The index tracking expected business conditions in six months’ time declined from 55.5 to 51 in April. The expectation of a harsh winter ahead regarding load-shedding and uncertainty about the strength of global demand, with the manufacturing sector in major European trading partners under pressure, likely depressed expectations. A potential positive for the sector is that reduced pressure on costs can be expected through the remainder of the year. Following a sharp rise in February, the purchasing price index moved lower for a second month in April. To be sure, input prices are unlikely to come down, but the rapid pace of annual cost increases producers had to deal with through 2022 is set to become much less intense through the rest of 2023. The notable exception is set to be load-shedding mitigation costs, such as powering diesel generators.
