Manufacturing production drops in September

Manufacturing conditions slipped marginally in September, with business activity showing signs of strain, signalling that the sector could weigh on growth in the third quarter. 

Though it stayed in positive territory, the Absa purchasing managers’ index (PMI) slid to 56.8 index points from August’s 57.9 points, according to a release from the bank on Friday.

The sector has been working to recover from the setback caused by civil unrest that saw it whipsaw from a 14-month low in July to a positive leap in August — even as it grapples with the longer-term ramifications of the Covid-19 pandemic.

But the business activity subindex, which is analogous to manufacturing production, dropped a sharp five points to 53.8, according to Absa. On a quarterly average basis, the business activity index measured 46.3 points during the third quarter, “down notably” from just more than 55 in quarter two. 

 “The weaker activity levels in [the third quarter] are in line with the trend in the Absa quarterly manufacturing survey and suggests that the manufacturing sector is likely to be a drag on the quarterly GDP momentum in the third quarter,” Absa said. 

The Absa PMI, released with Stellenbosch University’s Bureau for Economic Research, is a reliable monthly gauge of manufacturing activity and an early indicator of underlying economic activity. 

The manufacturing sector contributes just less than 13% of GDP and about 9.5% of employment.

The index is based on surveyed responses to a number of questions, including new sales orders, business activity and employment. A reading above 50 points indicates expansion in the sector, while anything below 50 points to a contraction

On the jobs front, the employment subindex remained in negative territory, despite a small uptick to 48.6 points. 

“This continues to suggest a lacklustre factory sector job market,” Absa said, pointing to the most recent quarterly employment statistics released by Stats SA, which showed that manufacturing shed 15,000 jobs in the second quarter. 

“Unfortunately, the looting shock in July may result in more job shedding, especially in KwaZulu-Natal,” it said.

The purchasing price subcomponent of the index rose for the second consecutive month. However, the rise in input costs, alongside lengthening supplier delivery times, “may reflect the impact of worsening global supply-side bottlenecks”, it said.  

“Looking forward, besides the cost implication of supply and shipping constraints, the much weaker rand exchange rate in the latter part of September and the recent [further] rise in the Brent crude oil price should keep input cost pressures elevated in the foreseeable future.” 

These issues notwithstanding, respondents to the survey said they continued to expect an improvement in overall business conditions over the next six months. 

donnellyl@businesslive.co.za