PMI continues strong gains in February

The seasonally adjusted Kagiso Purchasing Managers Index (PMI) posted strong gains in February 2012, rising by 4.7 index points to reach a sturdy 57.9 – the highest level since February 2010.

At the current level, the domestic PMI is pointing to significantly stronger domestic factory sector trends than would have been expected given the depressed nature of the manufacturing sectors in South Africa’s key trading partners such as Europe and China.

“Indeed, the SA PMI has of late tracked the solid performance of the US manufacturing sector more closely,” said Abdul Davids, Head of research: Kagiso Asset Management.

The high level of the PMI may also reflect that the economies of the most important countries to which SA exports in Europe, including Germany, are still reasonably sound.

Furthermore, it may be indicative of solid domestic demand conditions.

The PMI is a diffusion index that strives to measure how widely a certain trend is dispersed in the factory sector. At the very least one can say that the latest results indicate that the positive trends are being experienced by a growing number of manufacturers, said Davids.

“We would like to see further confirmation of this in coming months before making a call on whether it also suggests a notable acceleration in manufacturing production.”

The seasonally adjusted business activity and new sales orders indices, the largest weighted PMI components, drove the robust headline increase.

The business activity index made the largest positive contribution, courtesy of an 11.6 point jump to a five and a half year high of 65.2. Not one of the 26 countries / regions for which PMIs were published in January had a business activity reading above 65 points.

The new sales orders index points to robust demand for South African factory goods as the index gained 7.5 points to 64.8 index points, its highest level since early 2010.

The forward looking indicators of the PMI suggest a continuation of the current trend. The expected business conditions index posted a further marginal increase to 66.2 points, while the PMI leading indicator (new sales orders expressed as a ratio of inventories) rose from 1.07 in January to 1.26 during February.

The ratio indicates that the current level of inventories in the manufacturing sector is low relative to the demand for factory goods, said Davids.

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