October PMI up, but demand and output on the decline

PMI_Economy_150.jpgThe seasonally-adjusted Absa Purchasing Managers’ Index (PMI) rose to 48.1 index points in October 2019, up from 45.1 index points in September 2019.

The October level was slightly higher than the average of 47.3 recorded during Quarter 3 and in line with the average of 48.3 points recorded during the first nine months of 2019.

The October PMI release incorporated updated seasonal adjustment factors for all of the seasonally-adjusted indices.

Four of the PMI’s sub-components improved from September, with only Inventories moving down.

The Business Activity Index increased after two consecutive declines. The index is now more or less in line with the average recorded during the first nine months of 2019.

The New Sales Orders Index rose slightly in October to 44.5 points. The uptick was not enough to offset the sharp drop recorded in September and the index remained more than 8 points below a recent high reached in July.

Both indices remained below the neutral 50-point mark, pointing to a decline in demand and output.

This was countered by the Supplier Deliveries Index, which improved further in October to 56.5 points. The index is at a four-month high and has now fully recovered from a sharp decline recorded in August.

The Supplier Deliveries Index tracks the performance of suppliers of materials, goods and services to the manufacturing sector compared to the previous month. Faster delivery is seen as a negative factor as it signals suppliers were less busy than the month before. As such, the inverse of the index is used to calculate the PMI.

The Employment Index rose for a second month to 42.3 points. While this is the highest level since May 2019, the level remains very weak compared to a longer-term history. The 20-year average of the series is 5 points higher than the current reading.

The headline PMI has only managed to edge above the neutral 50-point mark twice during the course of 2019 (in January and July). Even with the difficult current environment, respondents turned more negative about business conditions going forward. The index tracking expected business conditions in six months’ time fell to 45.7 in October – the lowest level in the past year. Respondents might be concerned about the potential influence that a slowing global economy will have on demand for exported goods. The mid-month bout of load shedding likely also dampened spirits.

The Inventories Index edged down further from an already 10-year low reached in September. The index remains the lowest of the five sub-indices included in the headline PMI.

The Purchasing Price Index broke its recent upward trend and declined after three consecutive increases. The index fell by 7.7 points to 69 points in October. This was despite the Rand, on average, weakening somewhat during the month.

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