Picture: SOWETAN
Picture: SOWETAN

The outlook for the manufacturing sector in the third quarter looks bleak.

The seasonally adjusted Absa purchasing managers index (PMI), which gauges activity in the manufacturing sector, hovered at a very weak 43.2 points in September from 43.4 the month before.

The average level of the PMI in the third quarter was 46 index points, which is the lowest average since the third quarter of 2017.

“The latest figure dashed any hope that the sharp PMI decline in August was a once-off occurrence,” Absa said in a statement on Monday.

A figure below 50 indicates contraction in the sector. The PMI is usually a good indicator of where the production numbers will head in two months.

The sector still faces many headwinds, including an increased tax burden and higher fuel prices that keep a lid on already mediocre domestic demand.
Elize Kruger, economist at NKC African Economics 

“While high-frequency activity data from Statistics SA suggests that the economy will exit the technical recession in the third quarter, the PMI survey inspires little hope that the economy staged a strong recovery,” said Absa.

The PMI dropped slightly with declines in three of the five subcomponents of the headline index. Only the suppliers’ deliveries index came in above the neutral 50-point mark.

Business activity index rose 1.5 points in September but remained well below the neutral 50-point mark at 38.7, while new sales orders index fell even lower during September to 39.6. The employment index fell to 42, its lowest level in more than four years. 

After six consecutive monthly declines, the index — which tracks expected business conditions in six months’ time — moved slightly higher in September, rising to 45.8 from 44.6.

In September, the PMI showed that activity in the manufacturing sector had dipped to its lowest level in just more than a year.

“The sector still faces many headwinds, including an increased tax burden and higher fuel prices that keep a lid on already mediocre domestic demand, while ongoing policy uncertainties are keeping investment spending hostage,” NKC African Economics economist Elize Kruger said.

menons@businesslive.co.za

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