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Johannesburg - The Kagiso Purchasing Managers' Index (PMI) declined by 2.1 points in December to 47.4, according to the latest figures released on Wednesday.
This was the fourth consecutive month of contraction, a trend last observed during the 2008/2009 recession.
"This sharp decline comes amid bleak employment dynamics within the manufacturing sector and adverse sentiment towards labour, following various strikes in the second half of 2012," said Abdul Davids, head of research at Kagiso Asset Management.
The downward trend was largely due to the fact that the employment index had plummeted by 7.4 points to 44.7 in December.
The Kagiso PMI measures business conditions in the manufacturing sector. Below 50 indicates contraction in the manufacturing sector, above 50 shows expansion.
According to Statistics SA's quarterly employment figures, in the third quarter of 2012 employment growth in the manufacturing sector remained flat on a quarter-on-quarter basis and lower (by 4 000 workers) when compared to the previous year.
Davids said that since the PMI employment index had been volatile in the past, more data was required before a conclusive outlook on employment prospects within the sector could be reached.
However, the production front was encouraging as the Business Activity Index gained 1.4 points to reach 47.3.
Davids said the sustainability of this increase was unclear.
"Despite increased production, demand for manufactured goods remained weak during December, as evidenced by the 2.8 point decline in the new sales orders index," he said.
At 44.9 new sales orders were at their lowest level since August 2009.
On inflation, the PMI continued to suggest elevated input cost pressures, with the price index stabilising at a level of 79.7.
He said cost pressures from increasing electricity and fuel prices and rising wage demands were placing significant strain on manufacturers who were struggling to compete globally.
"As a result, conditions within the local manufacturing sector are expected to remain challenging in the year ahead."
