Mixed signals from SA PMI

5 August 2010

5 August 2010 | Lindsay Clark

The South Africa Purchasing Managers’ Index (PMI) showed the rate of decline in manufacturing eased during July. It was up by 1.1 points to 49.5, its first increase in five months.

While the overall index remained in decline (a score of 50 indicates no change in activity), there were signs for optimism in the research, compiled by the Kagiso Group, as business activity climbed 5.7 points to 50.9.

Meanwhile, the contraction in employment slowed. The PMI employment score rose to 47.6 from 45.9, albeit still indicating that the sector is shedding jobs. Another significant move in July was a decline in price inflation, which fell 4.7 points to 59.4.

Hugo Pienaar, senior economist at South Africa’s Bureau for Economic Research, told SM: “The best way to sum up the mood currently is that, while the economy came out of recession in the second quarter of 2009 and the initial part of the recovery was arguably faster than expected, the underlying conditions remain challenging.”

These concerns were reflected in the PMI’s measure of new sales orders, which slipped below the key 50-point mark to 48.5. The outlook remains worrying, as the expected business conditions index fell for the fifth consecutive month to 57.7, although this still indicates more survey respondents are optimistic than pessimistic.

Pienaar said: “While SA purchasing managers expect conditions to improve in six month’s time, they are less optimistic now than a couple of months ago. I think the concerns about the possibility of a global growth relapse is one of the factors weighing on sentiment.”

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