Surge in power cuts undermines Absa PMI in September.
By Lehlohonolo Lehana.
South African manufacturing activity shrank for the eighth month in a row in September, at a faster pace than in the previous month as demand was depressed and production constrained.
The seasonally-adjusted Absa Purchasing Managers' Index (PMI) fell to 45.4 points in September from 49.7 points in August, falling further below the 50-point mark that separates expansion from contraction.
The business activity sub-index saw a slip of over eight points in September, reversing most of August's almost 12 point gain.
The PMI measures prevailing economic trends in manufacturing through a survey conducted by the Bureau for Economic Research (BER) and sponsored by Absa.
Absa said in a statement that more intense rolling power cuts and weak domestic and external demand could explain the drop in September activity levels.
Despite all this bad news, the BER says purchasing managers do not expect the tough trading conditions to persist, with the index measuring expected business conditions in six months increasing to 55.6, the highest level since March.
Jacques Nel, head of Africa Macro at economic research group, Oxford Economics Africa, says the fact that demand conditions are undoubtedly weak means the supplier deliveries index is being artificially boosted by supply disruptions.
These disruptions include the lingering impact after trucks were torched on the N3 highway in July and the Western Cape taxi strike in August.
"Demand conditions at home and abroad remain unfavourable due to elevated borrowing costs and the aftermath of cost-of-living crises. South African consumers and businesses also experienced an increase in intermittent power outages in September."
New sales orders index took a thumping: dropping more than 10 points to 35.3. The employment index remained deep in contractionary territory, improving only slightly from 42.8 in August to 43.8 in September.
In turn, the purchasing price index moved higher for the second consecutive month, coming in at 67.2 most recently.
Nel says it is concerning that the supplier deliveries index remained at a lofty 62.0 in September, up slightly from 61.9 in August.
"The fact that supply disruptions are boosting a salient subcomponent indicates that business conditions in the manufacturing sector are even less favourable than the latest 45.4 PMI reading suggests."