PMI update: The PMI moved back into positive territory, supported by a lift in new sales orders

01 May 2018

Annabel Bishop

Chief Economist

Figure 1: Manufacturing growth vs Absa PMI*
  • April’s PMI reading climbed 4 points to 50.9, from March’s 46.9, moving back into positive territory.
  • Strengthening demand was reflected in substantially higher new sales orders in April, which in turn supported a moderate lift in business activity However, business activity still remained in contractionary territory, below 50. According to the BER, “If demand holds up in coming months, activity should follow the new sales orders index into positive terrain” (see figure 2).
  • The index measuring expectations, with respect to future business conditions dropped to 69.9, from February’s 17- year high of 79.1, however it is still “(w)ell above the average level recorded during the past 12 months”, according to the BER.
  • Additionally, the recovery in the new sales orders index triggered a lift in the PMI’s leading indicator to above 1 (with orders outstripping inventory levels), which usually signifies future strength in output.
  • Manufacturing cost pressures intensified in April, as reflected by the purchasing price index. The BER stated in its survey report that the uptick was “(l)ikely driven by the weaker rand exchange rate as well as a higher Brent crude oil price compared to the previous month”.
  • The employment index improved marginally in April, but remained under 50.
  • Recent positive events, including a 25bp rate cut, coupled with a sharp increase in consumer sentiment, should lift private consumption going forward. Additionally the global composite PMI, although slightly weaker than February’s 41 month high, is still elevated on a quarterly basis and should continue to lend some support to the domestic economy.
Figure 2: Absa Purchasing Managers Index: results
Figure 3: Nominal trade weighted rand