After ending the third quarter on a downbeat note, the Absa Purchasing Managers’ Index (PMI) also had a poor start to the
fourth quarter. The headline index dropped further to 45.4 index points in October, from an upwardly revised 46.21 during
September. In terms of the major subindices of the headline PMI, the biggest drag came from the seasonally adjusted
business activity index, which declined by a further 2.8 points to a lowly 40.3. Given that the frequency and intensity of
load-shedding eased notably in October, the weak performance from the activity index is perplexing. It is now back to the
July 2023 level when prolonged disruptions on the N3 transport corridor most likely resulted in a (temporary) shortage of
inputs. These transport issues contributed to weak manufacturing output.
Although it is not clear why activity declined further in October, this does correspond with sustained weak readings on
demand. Indeed, notwithstanding a min$or increase, the PMI new sales orders index remained below 40 index points for the
second consecutive month. With the PMI export index performing better in October, the sustained weaker level for new
sales orders largely reflects weak domestic demand for manufactured goods. On the consumer front, elevated relative (food
and fuel) prices, as well as restrictive borrowing costs, are depressing demand for local manufactured goods. Regarding
industrial demand, constrained mining output amid soft coal and platinum group metal prices, as well as failing railway and
port efficiencies, may help to explain the lacklustre PMI production indicator.
Looking forward, the expectations of purchasing managers deteriorated sharply in October. The index measuring expected
business conditions in six months was down by more than 12 points to 43.4. With key units of the Kusile power station
resuming operations earlier than expected and the associated reduced load-shedding in October, adverse global events
seem to have driven the poor expectations reading. Besides poor activity data in the Eurozone and the UK, major SA export
markets, one can add the outbreak of war between Israel and Hamas in October. The expectations reading also declined
sharply in February 2022 when Russia invaded Ukraine.
