Picture: SOWETAN
Picture: SOWETAN

The manufacturing sector is showing signs of improvement after the deep hit taken during the worst of the lockdown restrictions.

Conditions in the sector stayed in positive territory for a third consecutive month in July, according to the latest Absa purchasing managers index (PMI), despite a slight decline from the previous month.

Though the data showed that activity levels have come back from the deep declines of the worst of the lockdown, economists warned that July’s print signals a month-on-month improvement rather than activity levels returning to pre-lockdown levels.

Employment in the sector showed little sign of recovery after it plunged in April under the harshest restrictions of the lockdown, when only essential goods and services could be produced or bought.

The latest Absa PMI, compiled in conjunction with Stellenbosch University’s Bureau for Economic Research, declined to 51.2 index points in July from 53.9 in June, according to a release from the bank on Monday.

The monthly gauge gives an indication of activity in the sector, which accounts for about 13% of SA’s GDP, and is an early indicator of underlying economic activity. A reading below 50 points to a contraction in activity, and a reading above 50 shows expansion.

Two important subcomponents — the business activity index and new sales orders — also showed monthly declines from June, but both remained in positive territory after falling to historic lows in April as a result of the lockdown.

The business activity index declined to 62.9 in July, from 64.6 in June, but remained high, suggesting further month-on-month improvement in activity, according to a statement from the bank. It added, though, that respondents “noted that activity is not yet back to pre-lockdown levels, despite the sharp monthly increases signalled since the slump in April”.

The new sales orders index declined in July to 53.4 index points after surging past 60 in June, but remained well above the neutral 50-point mark, signalling a continued expansion in demand, the bank said.

“Encouragingly, for the first time since October 2019, respondents noted a slight increase in export sales,” it said.

On the local front, especially producers supplying the hospitality sector remarked on continued weak demand, while those in the alcoholic beverages industry also reported a renewed drop in sales.

Absa senior economist Miyelani Maluleke, said in a note the July figures are encouraging and show that activity levels in the manufacturing sector have continued to rise from the exceptionally weak levels during the stringent lockdown restrictions. 

He cautioned that the PMI measures month-on-month changes, and as such the strong print in July “does not show that production has returned to pre-lockdown levels”.

The evident momentum is likely to start fading over the coming months, as output levels stabilise, and domestic and foreign demand could be “substantially weaker” than pre-pandemic levels, Maluleke said.

“A very worrying feature of the latest PMI survey is that the employment index remained particularly weak and, unlike the demand and activity indices, has barely recovered from the sharp plunge in April,” the bank said.

The employment index, at 33 points in July, languishes well below the neutral mark, and not far from April’s record low of 26.6 points. “The PMI employment indicator suggests that further job losses are likely after an initial hit to employment expected in the second quarter,” the bank said.

Manufacturing accounted for 10.4% of employment during the first quarter of 2020, according to Stats SA’s latest quarterly labour force survey amid the highest number of year-on-year job losses across the main sectors of the economy ever.

donnellyl@businesslive.co.za

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