Picture: SUPPLIED
Picture: SUPPLIED

Activity in the manufacturing sector moderated in January after reaching a 19-month high in December.

The seasonally adjusted Absa purchasing managers index (PMI), which gauges activity in the manufacturing industry, eased to 49.9 points in January 2019 after reaching its highest level for 2018 of 50.7 in December — the first time since May 2017 that the index breached the neutral 50 mark. A score below 50 indicates contraction in the sector.

This was lower than the Bloomberg consensus of 50.5.

“Despite the decline, the index remains two points above the average recorded in 2018, which suggests the sector started the year on a fairly solid footing,” Absa said in a statement on Friday.

Four out of five of the PMI’s subcomponents declined compared with December. The new sales orders index moderated but stayed above the neutral 50-point mark for a third consecutive month at 50.7 points.

“Should this positive trend be sustained, it bodes well for activity growth going forward,” Absa said.

However, the business activity index declined from 53.8 to 49.8.  The employment index rose by a solid 7.8 points to 48.3 from a multiyear low in December.

The expected business conditions index saw its third consecutive improvement and soared by 15.7 points in January — the best level in nine months.

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

Manufacturing, which accounts for about 13% of GDP, had a strong start to the fourth quarter of 2018 with growth of 3% in October and 1.6% in November. Manufacturing figures for December will be published on February 12 and are likely to show that the sector had positive growth in the fourth quarter of the year.

While the data points to weak growth in January, the forward-looking measures indicate that growth in the economy will pick up later this year, Capital Economics economist John Ashbourne said.

“With only a modest pickup in domestic growth, activity in the local manufacturing sector is likely to still be relatively constrained this year,” Investec economist Lara Hodes said.

“However, should sentiment pick up post the May elections and global growth concerns ease somewhat we could see activity rise at a faster pace than anticipated,” she said. 

menons@businesslive.co.za