Bad news for manufacturing as PMI falls

Johanesburg. – Activity in the manufacturing sector moderated in December 2013, the Kagiso purchasing managers index showed on Wednesday.
The seasonally adjusted index, which indicates activity in manufacturing, fell 2,5 points to 49,9 in December – the first time since April 2013 that it has fallen below 50.

An index level below 50 suggests a contraction in activity while that above 50 points to expansion.

Kagiso Asset Management research head Abdul Davids said despite the monthly decline, the index averaged at 51 points for the fourth quarter of 2013, signalling a slight expansion in the manufacturing sector.

The new sales orders index rose for the third consecutive month to 51,8 points while the business activity index fell 4,7 points to 49,3 in December, suggesting a slowdown in production growth.

The business activity index’s fourth-quarter average was, however, above 50, indicating a “relatively strong rebound in production after the third-quarter slump caused by the prolonged vehicle manufacturing strike”, Mr Davids said.

The employment index fell from a high level of 50,8 to 45,8 in December.

Mr Davids said the deterioration was expected, given that the manufacturing sector had struggled to create sustained employment growth since the 2008-09 recession.

The price index has started increasing again after declining for four consecutive months. It rose from 77,8 to 80,1 points as the weak rand put upward pressure on the prices of imported input products like fuel.

Mr Davids said that despite the mixed news, purchasing managers remained relatively optimistic about the first half of 2014.

The index measuring expected business conditions in six months’ time declined but remained above 50, at 57,9 points.

The PMI leading indicator, which expresses new sales orders as a ratio of inventories, rose above one for the first time since August, indicating inventories were below expected demand, which generally bodes well for future production in the manufacturing sector.

Mr Davids said South Africa’s PMI was now below those of its main trading partners.

He said activity in the eurozone rose at its fastest pace in two-and-a-half years in December and was now above the key 50-index level.

“In the US, the ISM manufacturing PMI declined somewhat, but at 57, remains at a fairly high level,” he said. – Businessday.