PMI declines – output and demand under pressure

The PMI declined by another 1.2 points to 47.1 in October, from an upwardly revised 48.3 during September, to reach the worst level since July 2011.

After rising to 51.1 during July 2012, the seasonally adjusted Kagiso PMI has now declined for three consecutive months. The index averaged just above 50 in Q3 and the latest reading suggests a notable loss in the manufacturing sector’s growth momentum, said Andre Coetzee MD of CIPS Africa.

The prolonged strikes in the mining sector through October and isolated industrial action in the vehicle manufacturing sector may have contributed to the weakness in the SA PMI during the month, noted Coetzee.

The two largest weighted sub-components of the PMI (business activity and new sales orders) fully accounted for the decline of the headline index.

The business activity index fell 3 points to 43.2 index points. The level of the index suggests a notable decline in manufacturing production at the start of the fourth quarter.

The new sales orders index also declined 3 points, now measuring 45.3 in October, which is indicative of soft demand for factory sector goods.

“The weak performance of these two key indices… reflects subdued manufacturing output trends in South Africa’s key trading partners,” said Coetzee. Initial indications are that the PMIs in China and the EU remained below the all-important 50 mark in October.

According to the PMI price index, the rise in factory sector input costs continued to accelerate. The index gained 1.3 points to 77.1. The employment trends in the manufacturing sector were again not inspiring as the PMI employment index continued to hover below the 50 line.

“Of interest is that, for the second month in a row, purchasing managers were more optimistic about the future. The index measuring expected business conditions in six months increased by 1.6 points to 57.1,” concluded Coetzee.

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