With the exception of the employment subcomponent (which declined further below 50), the other major PMI components all posted gains in October. Perhaps most encouraging is that the business activity index rose by 2.8 points to 48.7. While still below 50, the gain in October suggests that the weak readings during August and September may at least partially have been the result of temporary (strike related) factors.
New sales orders rose back above the 50 level, while inventories bounced by 5.5 index points to a robust 56.4 – the highest level since early 2008. Another positive (and perhaps surprising given that the global economic recovery seems to be losing momentum) development was that purchasing managers were more upbeat about the future. The expected business conditions index rose above 60 index points for the first time since May 2010.
On a more negative note, the seasonally adjusted PMI employment index declined by almost 4 points to 44.8 index points, the lowest level since October 2009 when the SA economy was only just emerging from the 2008/9 recession.
PMI suggests manufacturing output flat in October
· After falling below the key 50 mark in September, the seasonally adjusted Kagiso PMI rose back towards the neutral level during October to reach 49.8 index points versus a (marginal) upwardly revised  48.6 during the previous month.
· From an actual factory production perspective, perhaps the most encouraging development in October is that the business activity index rose by 2.8 points to 48.7. While still below 50, the gain in October suggests that the weak readings during August and September may at least partially have been the result of temporary (strike related) factors.
· The actual Stats SA data showed that seasonally adjusted manufacturing production declined by 3.6% m-o-m during August. More than two percentage points of the decline was explained by a 19.9% m-o-m plunge in the motor vehicles, parts, accessories and other transport equipment category. The sharp fall was in reaction to the vehicle manufacturing strike in August. Based on the September PMI data and the vehicle component strike during the month, a further m-o-m fall in actual output is likely during September, while October may see a largely flat figure. At this early stage, the PMI numbers indicate that factory production may recover in 2010Q4, albeit not materially.
· The expectation for a better Q4 is backed up by the demand related PMI components. New sales orders rose back above the key 50 index point mark with purchasing commitments remaining in expansionary territory. Furthermore, October saw a nice bounce (+5.5 index points) in the inventory index. Given some of the more positive trends for the other near-term demand indicators, the inventory increase does not seem to have been involuntary, i.e. that inventories rose because purchasing managers were caught off guard by soft demand conditions.
For further information: Theo Vorster, Kagiso Securities
Tel: (011) 341 3042
Mobile: 083 260 2354
Hugo Pienaar, Bureau for Economic Research
Tel: (021) 887 2810