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The Purchasing Managers’ Index (PMI) lost some of the ground it gained in April, falling back to 51.9 index points in May – a decrease of 3 index points from April’s 54.9 index points.

Despite the drop, the headline PMI managed to remain above the neutral 50-point mark for a third straight month. As indicated last month, the size of the relative increase in the headline PMI in April may have overstated actual production growth. The current level is, therefore, likely to be more indicative of conditions in the sector, noted the Economic Research.

The headline figure is now more or less in line with the Eurozone, a key market for South African manufacturing exports.

All but one of the major subcomponents of the PMI declined in May compared with April. The new sales orders index saw the biggest decline (-6.6 index points), but remained above 50. While some respondents indicated an improvement in export demand, local demand remained under pressure.

As new sales orders slowed, the business activity and employment indices followed suit and also declined in May. The employment index returned to under 50 points, but the business activity index continued to signal growth.

The only subcomponent to increase compared with April was the suppliers’ performance index. The index rose to a solid 56.2 from 51.8 points previously.

Encouragingly, purchasing managers remain relatively upbeat about business conditions in six months’ time. The index measuring expectations did decline slightly, but remained at a still healthy 54.1 index points. Also, the new sales orders index remained slightly higher than the inventories index, which means the PMI leading indicator remained just above 1, suggesting that output could tick up in coming months.

However, manufacturers are faced with renewed pressure on the cost front.

The price index rose to 80.1 points in May, up from 77.7 in April. This was likely driven by the weaker rand exchange rate as well as an increase in international oil prices.

The combination of these two factors resulted in a hefty fuel price increase effective from 1 June, which will continue to put pressure on costs.

Article supplied by Bureau for Economic Research