PMI: Manufacturing taking strain

"However, this reading is slightly higher than the average reading of 48.9 between March and April and may be impacted by the unseasonal additional public holiday during the month," said André Roux, head of fixed income at Investec Asset Management.

While business activity is contracting, the seasonally adjusted business activity index increased marginally from the combined March/April reading to print at 47.

"The weak first quarter, largely induced by the electricity shock, may be followed by a somewhat firmer second quarter as the sector makes up for lost production year to date," Roux said.

However, new sales orders saw continued weakness, with the seasonally adjusted index declining to 46.3 from 53.2.

The manufacturing sector continued to be exposed to significant increases in input costs, as is evident from the elevated PPI figure for April. At 91.1, the PMI price index breached 90 for the third consecutive month but declined slightly from 931.1 in April.

Employment growth in the manufacturing sector remains sluggish, with the index printing above the March and April average, but weaker than in April and below the critical level of 50.

"Electricity constraints and a general moderation in demand are likely to maintain downward pressure on employment," Roux said.

"Although the stimulating impact of a more competitive rand exchange rate may support the manufacturing sector going forward, capacity constraints like skills shortages and unreliable electricity supply as well as weakening global and local demand may hamper a recovery in the near term," he said.

Nevertheless, purchasing managers have scaled up their expectations regarding business conditions in six months' time to reach its highest level this year.

"There seems to be some evidence that the index is stabilising, hinting that the sector may weather some moderation in domestic demand," Roux concluded.

- I-Net Bridge