The seasonally adjusted Kagiso purchasing managers index (PMI) added 4.3 index points to hit a higher-than-expected 56.5 in August. The latest figure is the index’s highest level since August 2007, before the recession hit, said Abdul Davids, head of research at Kagiso Asset Management.
The index has now been above the key 50-point mark for five consecutive months.
All of the major PMI subcomponents have improved, with the business activity and new sales orders indices making the largest contributions to the overall increase, said Davids.
The sharp increase in the August business activity index following its minor pullback in July indicates that pressure on manufacturing output might be abating, noted Davids.
The new sales orders index rose by 2.5 points to 57.5 in August, suggesting that the demand for manufactured goods had improved.
“Although conditions in the eurozone are improving, they remain tough and the improvement in demand is therefore more locally driven. We may be seeing the first signs of import replacement as the weaker rand improves the competitiveness of locally manufactured goods, versus more expensive imported goods,” said Davids.
He added that the latest PMI results showed that both demand and operating conditions within the South African manufacturing sector had improved notably, but he cautioned that, despite the improvement, manufacturers remain reluctant to increase production capacity until sustained demand-side improvements emerged.