November PMI shakes off 3-straight-month decline

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) rose to 49.5 index points in November from 42.4 in October.

This was the PMI’s first increase after three straight months of declines and brought the index to the best level since July 2018.

The improvement was broad-based with four out of the five main subcomponents rising compared with October.

However, despite the improvement, the PMI remains below the neutral 50-point mark, which suggests that the sector remains under pressure.

On a positive note, the new sales orders index managed to edge above 50 points. At 50.3 points, the index came in at the best level since May 2018. Respondents noted an improvement in exports after a dip in October, which likely helped lift overall orders into positive terrain. The orders index has been volatile over recent months, noted the Bureau for Economic Research (BER). BER stated they would need to see orders remaining above 50 for a sustained period before output is also likely to pick up more meaningfully.

The solid advance in sales orders likely contributed to the improvement in business activity from 40.3 points in October to 49.2 in November. However, the level of the index signals that output growth is still muted.

Indeed, despite an uptick in output, the employment index bucked the upward trend in the PMI’s other key subcomponents and dipped lower in November. The index declined from 44.2 in October to 43.5 in November. The November level is in line with September’s reading of 43.3.

In contrast, the inventories index more than recovered from October’s sharp decline in November. The index rose by 8.8 index points to 50.2 in November.

The purchasing commitments index increased for a third consecutive month to reach 54.3 in November – the highest level since February.

Encouragingly, the index tracking expected business conditions in six months’ time registered its first increase since February. The index rose by a solid 6.9 points to 48.6 index points, which is the highest level since July 2018. While the uptick is welcomed, the current level is still below the neutral 50-point mark and more than 30 points below February’s euphoric level.

One of the reasons behind the improvement in respondents’ sentiment towards the future may be a slight alleviation of pressure on the cost front, said BER in its report.

The purchasing price index declined by 6.1 points to 78.6 in November – the lowest level since June. This was likely driven by a stronger rand exchange rate (lessening the cost of imports in rand terms) and a sharp decline in the Brent crude oil price during the month. On average, the rand strengthened by about 2.6% against the dollar while the oil price slumped by more than 17% compared with October. The significant fuel price decline at the start of December may bring further relief for producers in December.

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