PMI July.jpgThe seasonally adjusted Kagiso PMI posted solid gains in January, gaining 2.9 index points to reach 54.6 – the highest level since April 2010. The improved reading provides further evidence that the PMI decline to below 50 in September / October 2010 was largely the outcome of temporary (strike related) factors, reports the Kagiso website.

New sales orders (which at 30% has the biggest weighting in the headline PMI) increased strongly (by 6.4 points) to 59.6, the highest reading since February 2010. The robust gain may be an indication that 1.) The strong growth in domestic consumer spending through 2010Q3 has been sustained and 2.) Foreign demand may be picking up, in line with recent global growth upgrades from institutions such as the IMF. Somewhat concerning was that the business activity index declined by 3.5 points to 51 – if new sales orders are sustained at the current level, the easing in activity levels should be transitory.

Another standout of the January results was the sharp rise in the PMI price index to 71.3 (from 63.1 during December). It was the first time since December 2008 that the index moved above the 70 mark. The current high level of the Brent crude oil price (above $95/bbl) may help to explain the sharp rise.

Factory employment remained a concern with the PMI employment index stuck below the important 50 mark for the ninth consecutive month. Having said that, the positive to take from the number is that it did not decline further, rising by 2.8 index points to 47.8.

PMI posts strong gains in January

* The seasonally adjusted Kagiso PMI started 2011 on a positive note, gaining 2.9 index points to reach 54.6 – the highest level since April 2010. The improved reading provides further evidence that the PMI decline to below 50 in September / October 2010 was largely the result of temporary (strike related) factors.

* A further positive development is that purchasing managers are also more confident regarding future factory business conditions. The expected business conditions index rose by 4.6 index points to 67.1, the highest level since 2010Q1. The higher reading may be indicative of the fact that both the global and SA economic outlook brightened somewhat towards the end of 2010.

* New sales orders (which at 30% has the biggest weighting in the headline PMI) increased strongly by 6.4 points to 59.6, the highest reading since February 2010. The robust gain may be an indication that 1.) The strong growth in domestic consumer spending through 2010Q3 was sustained in the early part of 2011 and 2.) Foreign demand for SA manufactured goods may be picking up, in line with recent global growth upgrades from institutions such as the IMF. A sustained pickup in orders should over time result in a higher reading for the index measuring backlog of sales orders, which declined to 35 from 43.8 during December 2010.

* Whereas improved international growth prospects are good news for SA from an export point of view, it has contributed to the recent sharp rise in a range of commodity prices. The commodity price gains have raised some concern about a build-up of inflationary pressures, particularly in emerging markets. The PMI price index increased sharply to 71.3 (from 63.1) during January. It was the first time since December 2008 that the index moved above the 70 mark. The current high level of the Brent crude oil price (above $95/bbl) may help to explain the sharp rise.

* Somewhat concerning was that the business activity index declined by 3.5 points to 51 – if new sales orders are sustained at the current level, the easing in activity levels should be transitory.

* Factory employment also remained a concern with the PMI employment index stuck below the important 50 mark for the ninth consecutive month. Having said that, the positive to take from the number is that it did not decline further, rising by 2.8 index points to 47.8 in January.

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