September PMI up, but still subdued

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) rose by 0.9 index points to 44.9 in September 2017. Despite the second straight improvement, the index remained well below the neutral 50-point mark for a fourth month. Encouragingly, the rise was supported by the key subcomponents, with four out of five increasing compared with August.

Of the main subcomponents, the new sales orders index registered its biggest increase in September, rising by 3.1 points to 43.2. While domestic demand conditions likely remained tough, some respondents noted an improvement in exports after a dip in August.

On the back of the uptick in demand, the business activity index also rose in September. The index increased for a second month, up to 42.8 index points from 41.3 in August. Despite the rise in the output index, the employment index fell back to July’s level of 44.1 index points.

The fuel price increase effective at the start of September likely contributed to the 4.2-point increase in the purchasing price index. The Brent crude price also continued to tick up during the month, with the average price being more than $3 (per barrel) higher in September compared with August. While the rand exchange rate was, on average, slightly stronger in September compared with August, it showed renewed weakness during the end of the month.

On a positive note, respondents were more optimistic about future business conditions. The index tracking expected business conditions in six months’ time rose back above the neutral 50-point mark to 52.4 index points. This is the best level since May 2017. The PMI leading indicator, however, remained stuck below one owing to inventories outstripping new sales orders. This usually does not bode well for output growth.