The seasonally adjusted Absa Purchasing Managers’ Index (PMI) rose by a further 1.6 points to 52.5 index points in February, after a 4.2-point rise in January. The second consecutive improvement in the PMI and the broad-based nature of the uptick across the key subcomponents is a positive sign that the manufacturing sector started the year on a solid footing, said the Bureau for Economic Research.
Indeed, four of the five major subcomponents are above the neutral 50-point mark and the headline figure is at the highest level since June 2016. After the increases recorded in January and February, the headline figure is closer to that of South Africa’s main trading partners after underperforming through the second half of 2016.
Most encouraging is that the new sales orders index stayed above the neutral 50-point mark for a fourth straight month. In fact, at 55.7 points, the index is now at the best level since April 2016. Respondents noted an uptick in export orders and the recovery in the local agricultural sector is also likely lifting demand for manufactured products. The sustained recovery in demand helped to lift the business activity index to 53.2 index points in February, up from 52.7 in January.
On the back of the sustained strengthening trend for the rand, the purchasing price index moved lower in February. The index declined to 68 from 72.4 in January (which was the highest level since June 2016).
After surging to the highest level in almost seven years, the index measuring expected business conditions in six months’ time remained high in February. The index did decline somewhat to 67.8 index points from 70.3 in January, but (excluding the January figure) this was still the most optimistic that purchasing managers have been about the near-term future since the start of 2015.
The PMI leading indicator also improved to above one in February, suggesting that production may pick up with orders outstripping inventories. A key risk to this relatively upbeat outlook is the possibility that the significant tax hikes announced in last week’s national budget may depress consumer spending going forward.