Absa PMI climbs in June, but slips for the second quarter

Factory owners experienced an uptick in activity in June, when the seasonally adjusted Absa Purchasing Managers’ Index (PMI) rose to 46.2 index points from 45.4 in May.

The average level for the second quarter was 46.3 points, however, below the level recorded in the first quarter of 2019.

The index gauges activity in the manufacturing sector and a score below 50 indicates a contraction. Manufacturing accounts for about 13% of GDP.

Economists had expected the PMI to remain in contractionary territory in June.

PMI indicators signal a deterioration in operating conditions with manufacturing employment and purchasing activity declining, said Investec economist Kamilla Kaplan. “Moreover, sentiment regarding the outlook for the next six month’s dropped in June partly on a decline in export demand,” she said.

Two of the PMI’s major sub-components came in above 50 points, while only one index declined compared to May — that of the employment index, which edged 1.3 points lower to 41.9.

The new sales order sub-index climbed 1.8 points to 46.2, while the business activity index climbed 1 point to 44.5.

Despite the downbeat readings, manufacturing growth seemed to be picking up, and the PMI surveys were frequently weaker than actual activity, said John Ashbourne, senior emerging markets economist at Capital Economics.

“But the persistence of very weak PMI readings is worrying. While the survey has a history of misleadingly low readings, these tend to be one-offs. The survey has now given consistently poor readings since the start of the year,” Ashbourne said.

Unless there has been a structural change in the economy or a big sampling error, this suggests to us that underlying activity is set to weaken, Ashbourne said.

gernetzkyk@businesslive.co.za