The seasonally adjusted Absa Purchasing Managers’ Index (PMI) ticked down slightly in March to 48.1 from 48.8 in February. After a solid start to the year, this was the second straight month that the index pointed to a deterioration in business conditions in the manufacturing sector. Still, when considering the performance of the business activity index through the entire first quarter, it suggests that output could improve from the quarterly contraction recorded in the fourth quarter of 2022. On the other hand, domestic demand seems to be struggling, with some comments referring to local demand faltering due to load-shedding. Indeed, in contrast to business activity, the new sales orders index performed worse relative to the fourth quarter. This was despite the PMI’s index tracking export sales performing well through the first quarter and rising to an almost two-year high in March.
In a further sign that delivery times are normalising, the supplier deliveries index recorded another steep decline to reach 50.8, the lowest level since the start of the pandemic. This is likely partly due to less constrained global supply chains, a trend also reflected in some international PMI surveys. This is a positive development for the sector. However, on the negative side, sustained weak demand likely also explains some of the recent downward move in South Africa.
Meanwhile, the purchasing price index halted its recent upward trend and fell slightly in March. This was despite a slight increase in the diesel price at the start of the month and a weaker rand exchange rate (on average to the US dollar) compared to February. However, less intense load-shedding during the second half of March would have helped lessen the costs of running diesel generators.
Respondents turned more optimistic about business conditions going forward. Following a sharp deterioration in February, the index tracking expected business conditions in six months’ time rose to 55.5 from 46.8 in February. This means that purchasing managers generally expect conditions to look better later this year. However, the long-term average of this index is well above the current reading, suggesting less optimism than usual.
