PMI continues its decline to 2009 financial-crisis levels

The seasonally-adjusted Absa Purchasing Managers’ Index (PMI) declined for a fourth consecutive month to reach 44.3 points in February 2020. The 0.9-point decline brought the index to its lowest level since the second half of 2009 when the economy started to recover from a deep recession triggered by the global financial crisis.

“At four points below the average reading in 2019, the current level is only six points above the lowest point reached in 2009”, noted the Bureau for Economic Research (BER) in a statement.

Four of the five sub-components of the headline PMI declined in February 2020, with only the Supplier Deliveries Index increasing compared with January 2020. This index is also the only one above 50 points, with all others pointing to worsening conditions.

After a fairly solid improvement in January, the Business Activity Index slumped lower in February. The index fell by 10.9 points to reach 33.7, the lowest level since early 2009. Some of the respondents highlighted repeated electricity interruptions as the reason for activity weakness.

Sustained weakness in the domestic market, paired with weakness in external demand, have contributed to a drop in sales orders. The New Sales Orders Index declined sharply in February, plunging to its lowest level since early 2009. Lower external demand has been driven by a sustained decline in export orders, which declined for a fourth consecutive month.

With business activity remaining below the neutral 50-point mark for a seventh consecutive month, the Employment Index nudged even lower in February, reaching an almost six-year low. The sustained weakness in the employment indicator corresponds with recent announcements of planned retrenchments in the factory sector (and wider economy). The employment picture is unlikely to turn around without a sustained improvement in demand to pull activity higher.

Eskom’s announcement of a high likelihood of load shedding during the next 18 months has likely pushed sentiment lower regarding business conditions going forward. The index tracking expected business conditions in six months’ time fell to its lowest level since 2009. The current level of 38.7 index points is less than half of the index value recorded in February 2018 (at the peak of Ramaphoria).

Continued concerns regarding the strength of the global economy may have soured sentiment even further, as respondents noted a decline in export sales for a fourth consecutive month.

The Inventories Index fell to its lowest level since mid-2009. The current level is 15 points below February 2019’s reading.

The Supplier Deliveries Index more than recovered from a fairly sharp decline recorded in January. This is at odds with weak underlying demand conditions in the economy.

After two consecutive increases, the Purchasing Price Index moved lower in February. The Rand exchange rate traded, on average, slightly weaker against the US dollar during February compared with the previous month. However, the sharp decline in the Brent Crude oil price likely drove the moderation in cost pressure.