31 Oct 2017

PMI update: PMI reflects a slower pace of contraction in manufacturing activity in October as domestic demand improves

Annabel Bishop

Chief Economic

The PMI survey reflected a continued contraction in manufacturing activity in October, albeit at a slower pace.

Figure 1: Manufacturing growth vs Absa PMI*
  • The PMI survey reflected a continued contraction in manufacturing activity in October, albeit at a slower pace. Specifically, the PMI gauge rose to 47.8 in October from 44.9 in September, and from an average of 43.9 in Q3.17.
  • The overall improvement was driven by gains in new sales orders, with this sub-index rising by 6.7 points to 49.9. According to the survey report, the increase in demand for SA manufactured goods stemmed from the domestic front as “respondents were slightly more negative about exports compared to the previous month.”
  • The increase in new sales orders was reflected in a slower pace of contraction in both business activity and purchasing commitments (see figure 2).
  • However, in October, survey respondents reported being less optimistic with respect to future business conditions which does not bode well for employment prospects in the sector.
  • The employment sub-index has been entrenched below the neutral 50 mark for the last six consecutive months. Sustained job creation in the sector is unlikely for as long as excess capacity and relatively low demand conditions persist (see figure 3).
  • In October, price pressures intensified for the third consecutive month with the price sub-index rising to its highest level in 2017, to 73.2. This has coincided with a weaker average rand and a higher international oil price. Since July 2017, petrol and diesel prices have increased by a cumulative R1.19 and R1.37 per litre.
  • SA’s PMI has diverged from the international trend of strengthening activity, with the global PMI and export orders remaining firmly in expansionary territory (see figures 4 and 5). Based on global PMI updates released so far today, manufacturing sectors in emerging markets and advanced economies have made a solid start to the final quarter of the year.
Figure 2: Absa Purchasing Managers Index: results for October 2017
Figure 3: Manufacturing: investment and capacity under-utilisation
Figure 4: SA versus global manufacturing PMI
Figure 5: Global manufacturing PMI