SA factories' struggle continues

Johannesburg - The seasonally adjusted Investec Purchasing Managers Index (PMI) fell to a record low of 36 points in March from 39.2 in February.

"The slump in global manufacturing over the past few months was again reflected in our own numbers in March," said Mokgatla Madisha, portfolio manager at Investec Asset Management.

"While the data may be more mixed this month, with some hints of improvement, the overall level is poor and reflective of a severe recession in the sector," Madisha said. The slump in business activity to 31.2, far below the critical 50-point level, is only marginally above the lows seen in November last year.

While activity has slowed sharply in recent months, input costs have been less responsive. "Input costs fell sharply in the last quarter of last year, but have been somewhat sticky since then. Readings this year to date have remained above the 50-point level, indicating that input price pressures do still exist in the sector. We expect the price trajectory to show a similar profile to that seen in prior cycles. Rising output gaps and a stable domestic currency is likely to provide further relief near term," Madisha said.

Continued job shedding is certain to attract the attention of policy makers and labour representatives. Being a lagging indicator, the sector could see a further contraction before conditions improve meaningfully.

Purchasing commitments and new sales orders improved slightly over the month and are consistent with expectations of better business conditions in six months' time. The outlook for the local manufacturing sector is closely linked to that of the global economy.

"With some forward looking indicators having improved over the month, there is a sense that the downturn we have witnessed from the second half of 2008, will start to bottom out in the second half of this year. However, we still face severe headwinds from plummeting consumer confidence and rising output gaps globally," Madisha concluded.

- I-Net Bridge