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Johannesburg - The Investec purchasing managers index (PMI) fell to an all-time low of 42.8 in July since its inception in September 1999, down from 43.8, Investec said on Friday.
"This is testimony to the headwinds facing the manufacturing
sector," said Mokgatla Madisha, portfolio manager at Investec Asset Management.
"The recent weakness in the sector is consistent with the BER
manufacturing business confidence index, which declined to a
seven-and-a-half year low during the second quarter."
However, the decline had yet to reflect in the official
manufacturing sales and production data, Madisha added. The major contributor to the decline in the overall index was a sharp contraction in new sales orders.
The seasonally adjusted new sales orders index dropped to a record low of 37.9 in July, dropping below 40 for the first time since the survey's inception.
Business activity remained "lacklustre" and purchasing managers
reported a significant drop in inventory levels.
"This does not bode well for activity in the manufacturing sector over the near term, pointing to a further reduction in demand consistent with weaker purchasing manager expectations of business conditions in six months," Madisha said.
Against this backdrop of weak demand and reduced activity, the
manufacturing sector continued to shed jobs, with the seasonally
adjusted employment index dropping further to reach 42.4 in July.
The PMI price index increased to 91.8, after decreasing marginally in June.
"While the recent oil price decline, coupled with some appreciation of the currency, will bring some relief... rising transport and energy costs continue to threaten a recovery in the sector," Madisha said.
"The combined effect of weak demand and high cost pressures is
severely constraining manufacturing sector activity, while the
deterioration in the outlook for both domestic and global demand
implies at best a slow and protracted recovery of the sector," he said.
The PMI survey is conducted on a monthly basis by the Bureau for
Economic Research at the University of Stellenbosch in conjunction with the Institute of Purchasing Managers in South Africa, sponsored by Investec Asset Management.