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Real Economy News in Real Time
R/€ = 16.14 Change: -0.01
R/$ = 14.45 Change: 0.05
Au 1467.50 $/oz Change: -4.96
Pt 931.39 $/oz Change: -7.66
 
 
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Absa PMI decreases to 47.7 in November

2nd December 2019 BY: Tasneem Bulbulia
Creamer Media Reporter

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) ticked down to 47.7 index points in November, from 48.1 in October.

The decline was broad-based, with four of the five subcomponents of the headline PMI having decreased month-on-month.

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Despite the decline, the average level of the PMI in October and November is still slightly above that recorded in the third quarter.

However, it was concerning that business activity had slumped by a further 6.2 points to 39.4 in November.

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The weak readings on the business activity index seen in the fourth quarter so far argue against a strong, if any, recovery in manufacturing output, Absa said on Monday.

Demand remained under pressure, with the new sales orders index not being able to hold on to all of last month’s gains.

Respondents saw a decline in export demand during the month.

The only major subcomponent to record an improvement compared with the previous month was purchasing inventories, which picked up from a ten-year low reached in October.

Despite the increase, the index remained well below the neutral 50-point mark. The only subcomponent to come in above 50, which generally points to improving conditions, was the supplier deliveries index.

On a more positive note, respondents turned slightly less pessimistic about the near-term future.

The index tracking expected business conditions in six months’ time increased to 47.4 index points in November after recording five consecutive declines.

However, despite the uptick, the latest reading means that conditions are still expected to worsen in six months’ time, albeit less so than before.

Finally, the purchasing price index fell by a further 5.7 points after a 7.7-point decline was recorded last month. The sharp declines point to a significant moderation in cost increases. The index fell to the lowest level since early 2018.

Commenting on the PMI, Investec said that although the expected business conditions in six months’ time sub-index increased slightly, the mood remained sombre, which does not bode well for employment levels in the manufacturing sector. It indicated that this was evidenced by job losses, as a well as a reduction in purchasing activity, being sustained in November amid low production requirements.

In November, the rate of input cost inflation declined to the lowest rate since the first quarter of 2018. Investec posited that the decline is likely associated with the petrol and diesel price cuts in November as well as the weaker pricing power along the supply chain amid the weak demand conditions.

Investec said that based on the available data, the PMI signals that actual manufacturing production in the fourth quarter will likely not recover meaningfully from the contraction in the third quarter.

Speaking after the release of the data, Steel and Engineering Industries Federation of Southern Africa (Seifsa) economist Marique Kruger said the main PMI data doggedly places overall business activity in the contractionary zone for the fourth consecutive time since July and generally for the ninth time since the beginning of the year, succinctly capturing a difficult year for local businesses in the broader manufacturing sector, including the diverse metals and engineering (M&E) industry.

“The data, which is a good barometer of the health of the manufacturing sector, is also reflective of prevailing perception amongst business executives of the low possibility of a turnaround in fortunes as we approach the year end. This is especially so given that the poor performance of the PMI seems to continue unabated, thus leaving little doubt as to what will be expected in the few months after the festive break,” Kruger said.

She said weak business activity, low margins and profit levels, including increasing costs, are disconcerting and do not bode well for medium to long term planning.

“The challenging environment, therefore, highlights the need to urgently assist local companies in directly reducing the prices of intermediate inputs, towards enhanced competitiveness. The initiative will also strengthen business confidence and expectations, towards creating and maintaining jobs in the entire M&E value chain and the broader manufacturing sector,” Kruger said. 

EDITED BY: Chanel de Bruyn Creamer Media Senior Deputy Editor Online
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