Manufacturing.jpgThe Purchasing Managers’ Index (PMI) fell by 2.5 index points to 48.9 in August 2015. The dip below the neutral 50-point mark suggests that actual manufacturing production may have contracted in August, said the Bureau for Economic Research.

The average PMI for the first two months of Q3 2015 is only just above 50 points, suggesting that manufacturing output remains under pressure after contracting in Q2 2015.

 

Barring the new sales orders index, all of the PMI’s major subcomponents deteriorated compared with July. The inventories index registered the biggest decline and fell by 9.3 index points to 50.9 from a robust 60.2 in July. Another major driver of the fall in the headline index was the 4.6 index point drop in the business activity index.

The index fell to 48.6 points, the lowest level since April this year. In line with the contraction in activity growth in August, the employment index slumped to 45.2 index points – the index has now remained below the neutral 50-point mark for 17 straight months.

The only index to improve in August was the new sales orders index. The index edged back above the neutral 50-point mark to 50.6 index points from 49.8 in July.

A notable development in the August PMI was the sharp drop in the index measuring expected business conditions in six months’ time. The index declined to 52.5 index points from 63.2 previously – Purchasing Managers had remained surprisingly upbeat about the future since December 2014. This was despite an intensification of load-shedding and persistent weak demand conditions.

Heightened concerns about the slowdown of the Chinese economy causes downward pressure on international commodity prices. Lower prices weigh on the local mining sector with potential adverse spillovers to manufacturing. This may have affected sentiment in August.

In addition, despite the increase in sales orders and the fall in inventories, the PMI leading indicator remained below 1. This generally does not bode well for actual production growth going forward.