Business conditions in private sector hit 11-month high
And despite the PMI remaining negative, when comparing it with historical growth trends, it indicates a rise in quarterly GDP, one economist says
Conditions in the private sector improved in September to the best levels in almost a year, as lockdown restrictions eased.
The latest IHS Markit SA purchasing managers’ index (PMI), an economy wide gauge of business conditions, reached 49.4 index points, its highest level since October 2019.
The PMI — an indicator of private-sector business performance that surveys 400 private-sector companies across the economy — has, however, remained below the 50 mark, a sign of contraction, for 17 consecutive months.
A reading of more than 50 shows overall improvement and it is derived from indicators for new orders, output, employment, suppliers’ delivery times and stocks of purchases.
Output and new business fell at much softer rates, as several surveyed companies highlighted a pick-up in demand as businesses returned to work, according to IHS Markit. Expectations of future conditions improved to the highest levels since February, but ongoing spare capacity led companies to further reduce employment.
Though the PMI remained in negative territory, when comparing it with historical growth trends, it was indicative of a rise in quarterly GDP, said IHS Markit economist David Owen.
“Expansions in output and demand will be needed to help businesses revive job markets though, as employment continued to fall steeply,” he said. “A rise in jobs will likely appear after an increase in economic activity, as firms will need time to recoup losses from the pandemic.”
The economy wide PMI follows the release last week of the Absa PMI, a gauge of sentiment in the manufacturing sector, which rose to a 21-year high in September.
This does not, however, translate to official manufacturing activity being back to pre-pandemic levels, Absa warned. Instead due to the month-on-month comparison asked for in the Absa PMI questionnaire, the high level merely means that conditions continue to improve.
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