The seasonally adjusted Absa Purchasing Managers’ Index (PMI) improved somewhat in August, rising by 2.4 points to 49.7, i.e., to just below the key 50-point mark. The increase in the headline PMI was driven by the business activity index, which jumped by almost 12 points to 50. This follows a large decline of almost 11 points in July. Although the magnitude of the rise in business activity gives an impression of some strength here, at 50, the index is pointing to flat month-on-month manufacturing output growth in August.
Albeit not nearly to the same extent, the new sales orders index was also higher in August. Even so, this index
remained well below the level of 50 that separates expansion from decline. This continued to reflect subdued demand for local manufactured goods. Another PMI subcomponent worth highlighting is the supplier delivery index. This index, which is inverted to show an increase when delivery lead times are longer, increased further in August to lift the headline PMI. In the pre-COVID environment, longer lead times were normally associated with stronger demand conditions in the factory sector. However, the further lengthening of delivery times in August followed a significant jump during July, when orders probably took longer to arrive amid disruptions linked to the torching of several trucks on the N3 transport corridor. In August, the week-long taxi strike in Cape Town, which led to significant worker absenteeism across sectors, most likely explains the further lengthening of delivery times. Because the most likely reason for longer delivery times in August was a supply-side constraint as opposed to higher demand, the headline PMI was, at least to some degree, again kept afloat artificially.
Another noteworthy development in August was a marginal rise in the PMI price index after a large decline in July.
With a substantial diesel price hike of more than R2.50/litre looming in early-September, this indicator has some scope to rise further in the near term. After hovering between 47 and 48 in June and July, the PMI employment index sagged by around 4.5 points to a lowly 42.8 in August. This does not bode well for the official employment stats in the factory sector.