PMI declines to a level below trading partners

The seasonally adjusted Kagiso Purchasing Managers’ Index (PMI) declined by 2.5 index points to reach 49.9 in December.

Having edged below the neutral 50-point mark for the first time since April 2013, South Africa’s PMI™ is below its main trading partners.

“Activity in the Eurozone rose at its fastest pace in two and a half years in December and is now comfortably above the key 50-index level. In the US, the ISM manufacturing PMI declined somewhat, but at 57, remains at a fairly high level,” said Abdul Davids, Head of Research at Kagiso Asset Management.

With activity growth in China remaining more subdued, the global manufacturing PMI increased only to 53.3 in December, slightly up from 53.1 in the previous month.

The average reading for South Africa’s fourth quarter remaining at 51 points signals a slight expansion in the sector, said Davids.

The Business Activity Index declined sharply to 49.3 in December from a relatively high 54 index points in the previous month, suggesting a slowdown in production growth. However, the index’s Q4 average is at 52 and the readings for October and November indicate a relatively strong rebound in production after the Q3 slump caused by the prolonged vehicle manufacturing strike, said Davids.

The Employment Index fell from a relatively high level of 50.8 to 45.8 in December. This deterioration was expected given that the manufacturing sector has struggled to create sustained employment growth since the 2008/09 recession, noted Davids.

With the weak Rand placing upward pressure on the prices of imported input products like fuel, the Price Index increased from 77.8 to 80.1 points, after declining for four consecutive months.

Despite the mixed news, purchasing managers remained relatively optimistic about the first half of 2014. While the index measuring expected business conditions in six months’ time declined slightly, at 57.9 points, it remains at a high level. This sentiment was also reflected in the PMI leading indicator, which rose above 1 for the first time since August 2013. A level above 1 indicates that inventories are below expected demand, which generally bodes well for future production in the manufacturing sector.

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