Graph.jpgThe South African Purchasing Managers’ Index (PMI) continued its recent upward move and reached 54.9 index points in April. The PMI rose from 50.5 in March and is now more than 10 points above the level recorded just three months ago, noted the Bureau for Economic Research (BER).

The new sales orders index rose for a third straight month and the improvement in demand filtered through to higher output. 

 

 

The business activity index increased above the neutral 50-point mark after signalling a slowdown for eight straight months.

Some respondents noted that import substitution led to an improvement in domestic demand, while exports also rose.

The sustained improvement and the broad-based nature of the uptick (with four out of the five major subcomponents improving) are encouraging signs that the sector may have reached a bottom and could continue to trend upwards in coming months, said BER in a statement.

Importantly, the magnitude of the uptick in the PMI will not necessarily be reflected to the same extent in actual production growth. Many of the PMI indicators come from almost recession-low levels during late 2015, which were even sustained at the start of 2016, and this amplifies the size of the relative increases somewhat.

Nonetheless, the fact that all five of the PMI’s major subcomponents are now above 50 (the last time this happened was in August 2013) suggests a change of fortune. Indeed, purchasing managers are also notably more upbeat about expected business conditions in six months’ time than they were at the start of the year. The index rose by 4.8 points to 55.9 in April, which is 16.5 points above January’s level.

The PMI leading indicator also stayed above 1 for a third straight month, which could lead to higher production growth with demand outstripping inventories, said BER.
The decline in the price index, which means slower cost price increases, should also be welcomed by manufacturers.