January PMI rebounds from December fall

Purchasing Manager Index PMI

The Purchasing Managers’ Index (PMI) rose to 49.9 index points in January. This is the best reading since May 2017 and the 5-point rise counters the 3.7-point slump experienced in December 2017.

The January PMI suggests that the local manufacturing sector began the year on relatively solid ground compared with recent readings, noted the Bureau for Economic Research (BER).

The improvement was broad-based with all five major sub-components increasing compared with December.

The Business Activity Index recorded the biggest increase and rose by almost 10 points in January. This was supported by an improvement in demand as reflected by the rise in the New Sales Orders Index. Both indices managed to edge back above the neutral 50-point mark for the first time since May 2017.

In contrast to the encouraging improvement in business activity, the Employment Index rose only to 45.6 in January (up from 44.8 in December). The apparent expansion in output would have to be sustained for the Employment Index to also pick up in coming months, noted BER in their report.

Encouragingly, the index tracking expected business conditions in six months’ time recorded another sharp increase. The index rose by 10.9 points to 72.8 in January after an 11.9-point uptick in December 2017. The increases brought the index to its highest level since early 2010. The improvement is likely owing to the stronger global growth outlook as well as better prospects for the domestic economy. In addition, the fact that the New Sales Orders Index came in above the Inventories Index means that the PMI’s leading indicator is above one, which bodes well for output growth going forward.

The Purchasing Price Index fell for a second month in January. This points to lower cost pressures for manufacturers. The index fell to 70.4 index points and is now more than 10 points below November 2017’s high of 80.7. The significantly stronger Rand exchange rate likely contributed to the downward move in the price index. The impact of the stronger Rand has, so far, outweighed the upward pressure on the fuel price stemming from the higher Brent Crude oil price, noted BER.

The Purchasing Commitments Index declined for a third straight month. The index dipped to 45.6 in January from 46.3 in December. Despite the recent declines, the index is still well above a recent low of 36.3 points reached in July 2017.

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