By Lehlohonolo Lehana.
South African manufacturing activity remained in positive terrain in January, as a decline in employment and new sales orders was offset by growth in business activity and inventories, Absa’s Purchasing Managers Index (PMI) showed on Wednesday.
The seasonally-adjusted Absa Purchasing Managers’ Index (PMI) was at 53.0 points in January, almost unchanged from 53.1 in December and remaining above the 50-point mark that separates expansion from contraction.
The significant, and surprising, improvement in the business activity index relative to the previous month was encouraging, despite many respondents still flagging loadshedding as holding back production and new sales orders dipping lower in January. Should this translate into actual production growth, it would be a promising start to the year for the struggling sector, Absa noted.
“The business activity index surged to 56 in January from 45.2 in December. While encouraging, it remains to be seen whether this can be sustained in the coming months, as many of the respondents flagged loadshedding as a drag on production.
“Continued activity growth would require a sustained improvement in demand and, most likely, a move to less intense stages of loadshedding. Therefore, the increase in the expected business conditions index was encouraging,” Absa said.
While the new sales orders index had proved surprisingly resilient in the final two months of 2022, the January reading of 49.9, down from 53.8 in December, points to no change in demand in the first month of 2023. As export sales remained unchanged at a fairly high level, the deterioration was likely caused by weaker domestic demand, the bank noted.
The employment index, after the unexpected surge to 54.3 in December from 45.7 in November, dipped back below the neutral 50-point mark in January, to 48.4, which suggests that any improvement in staffing levels at the end of the year was temporary.
Meanwhile, the inventories index more than recovered from December’s sudden drop to below the neutral 50-point mark and rose by 6.8 points to 53.1, which is its best level since August 2022. The index was up from 46.3 in December and higher than the 51.9 registered in November, Absa said in its report.
Additionally, the supplier deliveries index declined to the lowest level in two years, at 57.6, down from 65.8 in December, albeit remaining well above the neutral 50-point mark, which was unusual prior to the pandemic.
“The fall could have been owing to more efficient supply chains resulting in faster delivery times, because the index is inverted and faster delivery times result in a decrease. However, it could also be linked to the downtick in new sales orders, with less demand for inputs resulting in more responsive deliveries,” the bank said.
Following a steady decline, the purchasing price index booked its biggest increase since March 2022 to 69.3 index points, up from 64.4 in December, but lower than the 75.9 in November. However, the index remains low relative to its long-term average. The uptick in costs could possibly be linked to measures to offset the impact of loadshedding on production.
The rand exchange rate was, on average, slightly stronger to the dollar compared to December, but the Brent crude oil price was higher. The resulting uptick in the fuel price will put further pressure on costs, especially for businesses using diesel generators, Absa added.