AbdulDavids2.jpgThe South African Purchasing Managers’ Index (PMI) rose for a third month running in October, increasing by 1 index point to 51.8 and signalling a relatively strong start to the fourth quarter.

This marks the best level it has reached since November 2013. 

The purchasing managers’ index, derived from monthly surveys of private-sector companies, is an indicator of the economic health of the manufacturing sector. A reading below 50 points to contraction in manufacturing activity while above 50 indicates an expansion in manufacturing activity.

The rise in the index was driven by an increase in the new sales order index to 55.9 points from 53 previously, which confirms that domestic demand is slowly recovering from production stoppages related to industrial action in the mining and manufacturing sectors during the first seven months of 2014, said Abdul Davids, Head of research at Kagiso Asset Management.

“The slight improvement in the Eurozone flash manufacturing PMI to 50.7 and the Chinese flash figure to 50.4 is also supportive of stronger demand [for SA exports].”

Purchasing managers are confident that the demand will be sustained going forward (the Inventories Index rose sharply), which is supported by the 5.1 index point rise to 60.4 in the index measuring expected business conditions in six months’ time, says Davids.

However, the rise in demand is not yet matched by a strong improvement in output and the Business Activity Index nudged down to 50.3 from 50.5.

Both Europe and China are underperforming compared with the US, whose flash PMI came in at 56.2 and new sales orders stood at a robust 57.1 index points. “Unfortunately, the US is not a large direct importer of South African manufactured goods, but an improvement will support the overall global growth outlook,” says Davids.

The price index fell to 76 after four consecutive increases.

"Lower domestic petrol and diesel prices following the sharply lower international crude oil price, and a slight strengthening of the rand exchange rate most likely alleviated some of the cost price pressures," concludes Davids.

Read the full November PMI report