Picture: SUPPLIED
Picture: SUPPLIED

Activity in the manufacturing sector reached its best level in 2018 in December, ending the year on a strong note.

The Absa purchasing managers index (PMI), which gauges activity in the manufacturing industry, rose from 49.5 in November to 50.7 points in December. This is the first time since May 2017 that the index has breached the neutral 50 mark.

While the monthly survey tends to be a good predictor of the manufacturing production and sales figures Statistics SA provides two months later, it has been volatile in recent months.

“It is because of this recent volatility that we remain cautious about interpreting the latest reading as the start of a cycle,” Absa economist Miyelani Maluleke said. 

A score above 50 indicates expansion in the sector and December’s figures were driven by increases in three of the five sub-components that track activity, demand, and supplier performance.  The boost in demand saw the sub-index that tracks business activity climb above 50 for the first time since February.

For the first time since July, respondents expect business conditions to improve in six months’ time. Despite this, employment moved to its lowest level since 2014, while the inventories index fell below 50.

Manufacturing, which accounts for about 13% of GDP, had a strong start to the fourth quarter of 2018 with growth of 3% in October. Figures for November are expected to be released by Stats SA on Thursday.

“There is scope for the moderate recovery that started in the third quarter to extend to the fourth quarter of 2018,” said Maluleke. However, the employment sub-component in the index has fallen to its lowest in three decades, with figures comparable to 1972, before the boom in the 1980s.

“Indeed, while the December survey results are encouraging, a sustained recovery in demand is required before a meaningful recovery in manufacturing output, investment and employment can take place,” Absa said in a statement on Wednesday.

Absa warned, however, that possible load-shedding from Eskom from mid-January could “depress the tentative signs of a recovery in the sector”.

menons@businesslive.co.za