Picture: ISTOCK
Picture: ISTOCK

SA’s factories could be set for a turnaround — confounding expectations from a key gauge of the manufacturing sector’s health.

The Absa purchasing managers’ index (PMI) breached the 50-point neutral level in July, after two months of contraction.

The index jumped to 51.5 in July after falling to 47.9 in June.

Four out of five of the key subcomponents were in positive terrain.

The PMI gauges activity in the manufacturing sector and is usually a good indicator of where the production numbers will head in two months.

A figure above 50 points to expansion in the sector.

The July recovery was driven by an improvement in demand, seen by the increase in the new sales orders index, which filtered through to higher business activity.

The output index managed to edge above 50 points for the first time since February, which contributed to the increase in the employment index.

However, the inventories index remained stuck below 50.

The index tracking expected business conditions in six months’ time declined to 48.7 points in July from 55.7 in June. This is the first time since August 2017 that manufacturers expect future conditions to deteriorate instead of improve.

Absa said in a statement on Wednesday: "Part of this is because current conditions are (according to the PMI survey) better than they have been in recent months, so an improvement from this more elevated level may be less likely than from tougher conditions before."

Economists were expecting a different outcome.

FNB economist Mamello Matikinca did not expect much improvement from the Absa manufacturing PMI in July, expecting the number to remain below 50.

"Growing trade tensions globally and weak domestic demand are likely to keep the index in the doldrums over the medium term," she said.

Investec had expected the PMI to edge up, but still remain in contraction territory, at 48.5.

"This is in line with global trends, with June’s global manufacturing growth at an 11-month low," said Investec economist Lara Hodes.