PMI declines in December, remains in contractionary mode
SA’s factory output contracted further in December, the monthly Barclays sponsored poll of purchasing managers released on Thursday showed.
The purchasing managers index (PMI) fell to 46.7 from 48.3 points in November, the survey undertaken by Stellenbosch University’s Bureau of Economic Research found. A reading under 50 points indicates the manufacturing sector is contracting.
Statistics SA is scheduled to release November’s manufacturing sales and output data at 1pm on Thursday. The PMI survey tends to be a good predictor of what Stats SA’s more thorough study will show the following the month.
Barclays said SA’s persistently pessimistic PMI readings contrasted with similar surveys in other countries
"In the US and the eurozone, manufacturing PMI readings came in above 54 index points in December. The most recent Chinese PMIs are also pointing to accelerating output growth," the research note said.
"In all likelihood, the key reason why the South African manufacturing sector is underperforming is the persistent weakness of domestic demand. Key supply constraints — most notably load shedding and strike activity — actually moderated through 2016."
Four of the five major subcomponents of the PMI remained below 50 points in December. Most notably, the index measuring suppliers’ performance slumped to a historic low of 40.9 from 48 index points in November, Barclays said.
The business activity index fell 2.6 points to 46.3 in December — the sixth consecutive month that the index has reflected a decline in output.
Encouragingly, the new sales orders index managed to stay just above 50 in December at 50.9 points, probably lifted by continued export orders. The inventories index declined for a third month, keeping it well below the new sales orders index.
Manufacturers were relatively optimistic about expected business conditions in six months’ time, albeit that the index fell slightly from 53.9 to 53.2 in December.
After remaining virtually unchanged in November, the employment component of the index was up 1.2 points to 46.2 in December.
The average for the fourth quarter was 45.4, below the third-quarter average of 50.4, which means that the factory sector is likely to have shed additional jobs. Stats SA’s employment statistics for the third quarter showed that the sector lost 3,000 formal jobs from the second quarter and 23,000 on an annual basis.