Manufacturing growth vs Absa PMI*
  • The manufacturing PMI increased to 44.9 in September from 44.0 in August. 
  • The September survey data indicated greater inflationary pressures, with the price sub-index rising 4.2 points to 71.4, the highest level since the start of the year. The higher international oil price contributed to the substantial petrol and diesel price increases of 67c/litre and 44c/litre respectively in September. 
  • Although the business activity and new sales orders indicators improved in September, the sub-indices remained below the neutral 50-mark signalling an ongoing contraction, albeit at a slower pace, (see figure 2). The survey assessed that domestic demand remained weak but that export orders improved. 
  • This would be consistent with the evidence from the global PMI and export orders that have remained in expansionary territory and point to continued growth in production and trade momentum (see figure 3).
  • In September, survey respondents reported being more optimistic with respect to future business conditions but this did not translate into improved employment prospects in the sector.
  • The employment sub-index fell back to 44.1 from 47.0 the prior month, signalling a reduction in manufacturing sector headcounts. Indeed, excess capacity and low demand conditions restrict the need for capacity expansion (see figure 4). This is reflective of weak private sector fixed investment and job creation. 
  • The SA manufacturing sector appears to have lost momentum in Q3.17, with the PMI averaging 43.9 compared to 47.6 in Q2.17. This would suggest that the recovery in manufacturing sector activity in Q2.17 may not have been sustained into H2.17.
  • This would corroborate with the Absa/BER manufacturing survey for Q3.17 that showed business confidence “at a very subdued level” and “(t)he survey suggests that the sector may well contract again, on an annual basis for the full Q3. Albeit that the performance may be slightly less negative” (see figure 5).
Figure 2: Absa Purchasing Managers Index: results for September 2017
Figure 3: Global manufacturing PMI
Figure 4: Manufacturing: investment and capacity under-utilisation
Figure 5: Manufacturing survey: production volumes