Global Courant 2023-05-02 15:46:58
The Absa Purchasing Managers’ Index (PMI) rose from 48.1 in March to 49.8 index points in April 2023.
This marks an upward turn for the PMI, which fell between February (48.8) and March (48.1). However, overall business activity is still tracking lower.
The index provides monthly feedback from company managers and is determined through surveys conducted among purchasing managers working in the country’s manufacturing sector.
Absa takes the feedback from industry heavyweights and processes all the data to create an index, where 50 represents stability, higher values represent increased activity, and lower levels represent reduced activity.
Absa said that despite the index’s improvement, it failed to return to the neutral 50-point mark as business activity and new sales orders deteriorated from March.
“Indeed, the overall PMI would have deteriorated further if the inventory index had not improved significantly.”
“The underlying research results suggest that the industry had another rough month at the start of the second quarter amid an intense tax cut that hurt production and demand remained under pressure,” said Absa.
Suppressed demand and consistent tax cuts adding to the pressure is a view shared by economists and analysts alike. In its latest Economic Monitor report, Nedbank said its data indicates that the underlying business environment for the company is unlikely to improve as a result of the tax shedding.
The graph below shows the fluctuation in PMI over the past years:
The marker with the highest increase was the stock index which rose to its highest level since mid-2022 in April. Higher operating inventories may indicate that a manufacturer is producing its goods well.
The inventory index rose from 47.7 in March to 58.8 in April:
“While we would caution against reading too much into a single month’s movement, the rapid rise in inventory levels of materials and goods used in the manufacturing process could have been driven by improved deliveries of goods thanks to better-functioning supply chains – which would align with the recent movement in the supplier supply PMI index.”
“In addition, or perhaps alternatively, weaker demand for end products or disruptions in the manufacturing process – due to the divestiture – could also have led to higher inventories of input products,” said Absa.
According to Absa, business activity (output) fell to 47.6 index points in April, and in terms of demand, new sales orders fell more than output, reaching the worst level since September 2022.
The index fell from 48.5 in March to 44.3.
The table below shows the changes in the indices over the past three months:
Index February March April Purchase price 78.6 78.1 75.0 Supplier deliveries 55.3 50.8 53.0 New sales orders 49.4 48.5 44.3 Operating activity 45.5 48.1 47.6 Inventories 46.5 47 .6 58.8 Employment 47.1 45.4 45.4
In terms of expected business conditions for the next six months, the index fell from 55.5 to 51 in April, with purchasing managers predicting only a marginal improvement in future business conditions.
Absa said this is likely due to expectations of a harsh winter ahead with load outages and uncertainty about global demand, particularly in European trading partners where the manufacturing sector is under pressure.
Despite this, Absa said there is potential upside for the industry as reduced cost pressures are expected for the remainder of the year, with the exception of tax reduction costs. While input prices are unlikely to fall, the rapid pace of annual cost increases for producers will become much less intense through 2023.
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