November was the fourth consecutive month of gains for the PMI, but the index remains below the level of 54.2 reached before the widespread factory sector strikes in July.
However, the increases of recent months mean that after averaging 48.3 during 2011Q3, the average for Q4 to date (October and November) rose to 51.1. This suggests that actual manufacturing production is likely to make a positive contribution to overall GDP growth in the final quarter of 2011 after subtracting from growth in 2011Q2 and Q3.
The index results come on the back of CIPS SA MD Andre Coetzee’s recent comments that the October and November PMI will be crucial in indicating whether countries move towards or away from a double-dip recession.
“The Kagiso PMI precedes the actual manufacturing production numbers in South Africa by six weeks. It’s the first indication of any change in the sector and a recession starts and ends in the manufacturing sector,” said Coetzee.
The further PMI gain in November goes against the trend for South Africa’s major trading partners. Indeed, the Markit Eurozone flash PMI estimate for November came in at only 46.4 index points, the lowest level since June 2009 and down from the 47.1 recorded during October. Furthermore, the HSBC Chinese flash PMI fell to a 32-month low of 48 in November.
Despite a more upbeat overall PMI number, purchasing managers reported increased concern over future prospects. The uncertain outlook is reflected in the expected business conditions index, which declined by 7.4 points to 55 – the lowest level since August 2011. The less upbeat prospects were corroborated by the PMI leading indicator (i.e. ratio between new sales orders and inventories) that declined to 0.94 from 1.01 during October.
The new sales orders index, which at 30% has the largest weighting of the key PMI sub-components, eased marginally by 0.4 points to 51.2, while the inventory index was the biggest gainer (+3.3 index points) to reach 54.4. This may suggest that purchasing managers expected demand to be somewhat stronger than it turned out to be, i.e. they purchased inputs in anticipation of increased demand, which did not materialise.
On a more positive note, the business activity index rose by 1.4 points to 52.3. The index averaged 51.6 during October and November versus 46.1 in Q3, which suggests improved actual factory output (compared to Q3) in the final three months of the year.