April PMI rises above Q1 average and exceeds 50-point mark

The seasonally-adjusted Absa Purchasing Managers’ Index (PMI) erased the losses sustained in March and edged back above the neutral 50-point mark in April. The index rose by 4 points to reach 50.9 index points in April. This is relatively in line with the level recorded in February and above the average recorded during the first three months of the year.

The improvement in the headline PMI was driven by increases in four of the five key sub-components, with only the Supplier Deliveries Index dipping lower compared to March. However, with the exception of the New Sales Orders Index, which is firmly in positive terrain, the other four sub-components remained below the neutral 50-point mark, said the Bureau for Economic Research.

After a sharp decline in March, the Business Activity Index managed to regain some of these losses in April. The index rose by 3.1 points to reach 49.1, up from 46 in March. Nonetheless, the current level is not only below the neutral 50-point mark, but also slightly lower than the average recorded during Q1 of 2018.

The Employment Index managed to hold on to the gains recorded in March and even ticked up marginally higher to 49.5 in April. The index is now almost 3 points above the average level recorded in Q1 of 2018, but still stuck just below the neutral 50-point mark.

If demand holds up in the coming months, activity should follow the New Sales Orders Index into positive terrain. The New Sales Orders Index recovered from an unexpectedly sharp decline in March. The index is now well above the average recorded during Q1 of 2018. If sustained, the current high level of the index should filter through to improved activity levels in the coming months.

The Inventories Index erased the previous two months’ losses and climbed to 46.4 in April. Despite the solid 5-point rise, the index remained almost 4 points below the neutral 50-point mark.

What bodes well for output going forward is that the PMI’s leading indicator is above 1 – with orders outstripping inventory levels.

The index tracking expected business conditions in six months’ time and declined for a second month to reach 69.6 index points in April. This is almost 10 points below an almost 17-year high reached in February, but still well above the average level recorded during the past 12 months.

The Purchasing Price Index rose by 6.2 points to reach 66.9 in April after a slight uptick in March. The rise is likely driven by the weaker Rand exchange rate as well as a higher Brent crude oil price compared to the previous month (on average). These factors also resulted in the hefty fuel price hike effective from 2 May, after fuel prices also increased sharply at the beginning of April, mainly on the back of levy increases. In addition, the weaker currency also meant that the cost of imported raw materials and intermediate goods ticked up in Rand terms.

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