Kagiso PMI drops further

Filomena Scalise

The seasonally-adjusted Kagiso Purchasing Managers Index (PMI) reached its lowest level since July 2011 in October, according to a statement on Thursday.

The index has declined for three consecutive months.

“The seasonally adjusted Kagiso PMI declined by another 1.2

points to 47.1 in October,” said Andre Coetzee, managing director of the Chartered Institute for Purchasing and Supply Africa (CIPS).

CIPS and the Bureau for Economic Research conduct the survey every month.

The index had been revised upward to 48.3 in September. For the third quarter, it had averaged just above 50.

The latest reading suggested a notable loss in the manufacturing sector's growth momentum.

“The two largest weighted sub-components of the PMI, ie business activity and new sales orders, fully accounted for the decline of the headline index,” said Coetzee.

Both indices lost three points, with business activity falling to 43.2 index points.

“The new sales orders index measured 45.3 in October, which is indicative of soft demand for factory sector goods,” he said.

The weak performance of these two indices not only reflected subdued manufacturing output trends in South Africa's key trading partners, but could also be a function of domestic constraints.

Initial indications were that PMIs in China and the European Union - South Africa's key exports markets - remained below the 50 mark in October, a sign of weakness.

“On the local front, 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,” Coetzee said.

The rise in factory sector input costs continued to accelerate, with the PMI price index gaining 1.3 points to 77.1.

Employment trends in the sector were weak, as the 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.

However, the more upbeat sentiment was not corroborated by the PMI leading indicator, which fell back further below one to 0.91.

This measures the ratio between new sales orders and inventories.

Any number below one indicates that inventories exceed the demand for manufactured goods, which normally does not bode well for factory sector production. - Sapa