March PMI dips slightly – results compiled before President’s cabinet shuffle

The Purchasing Managers’ Index (PMI) managed to hold on to recent gains and dipped only slightly lower in March 2017. The index declined to 52.2 points from February’s 52.5 points, remaining above the neutral 50-point mark for a third straight month, noted the Bureau for Economic Research (BER).

This was supported by all five major subcomponents coming in above 50 points – the last time this occurred was in May 2012. The average reading for Q1 2017 was also well above the level recorded in Q4 2016, which suggests that actual output is likely to pick up from the quarter-on-quarter contraction recorded in Q4 2016.

However, this does imply that output growth would have to improve in February and March after a 0.4% month-on-month decline in the January production data as published by Statistics South Africa.

The business activity index rose for a third straight month, supported by a sustained improvement in the new sales orders index, which held above the neutral 50-point mark for a fifth month. In addition, the employment index edged up above the neutral 50-point mark for the first time since August 2016. However, the apparent improvement in output will need to be sustained for this to translate into actual job growth.

The purchasing price index moved down further in March, declining to 63.5 from February’s 68. This was likely driven by the sustained strengthening trend in the rand exchange rate (during most of the month). Indeed, the majority of the survey responses came in before President Jacob Zuma recalled former Finance Minister Pravin Gordhan and his deputy from an overseas investor roadshow, which led to renewed rand weakness.

This also means that the outcome of the index measuring expected business conditions in six months’ time did not reflect the possible future impact of recent political developments. The index edged up to 68 from February’s 67.8.

Manufacturers may anticipate that the apparent improvement in global growth will filter through to higher exports, while domestic demand may benefit from a recovery in the agricultural sector.

The PMI leading indicator is just above one, owed to new sales orders coming in slightly higher than inventories, which usually bodes well for output growth.