PMI still positive but shows weak economic growth

Cape Town - There's good news and bad news in the latest Standard Bank South Africa Purchasing Managers' Index (PMI) released by Standard Bank and IHS Marklit on Monday.

A positive outcome is that the index has remained above 50.0 - with values above this figure signalling an improvement in business conditions on the previous month - for the ninth month running in May, the longest sequence of overall improvement in operating conditions in five years.

However, the PMI fell for the fourth time in five months from 50.3 in April to 50.2, signalling only fractional growth.

The main positive influences on the PMI in May was the growth of employment as well as longer suppliers’ delivery times. Output and new orders were both broadly neutral and stocks of purchases contracted during the latest period, weighing on the PMI.

Data on new business inflows revealed weak underlying business conditions in the South African private sector economy in May. The volume of new work received was broadly unchanged since April, following only modest growth in the first four months of 2017.

Notably, the level of new export business declined for the seventh consecutive month and at the fastest rate since October 2015.

Reflecting the trend in new business, output was broadly flat in May. Moreover, the volume of outstanding business was little changed since April, indicating a lack of pressure on capacity.

With overall workloads broadly stagnant during the month, private sector firms in South Africa lowered their purchasing activity. This followed a seven-month sequence of growth. Despite this, suppliers’ delivery times lengthened to the greatest extent in four months.

The main positive finding from the latest survey was a further rise in employment. The current 11-month sequence of private sector job creation is the longest observed in four years. However, the rate of workforce growth was only marginal. Average purchase prices were broadly unchanged in May.

Meanwhile, wage inflation remained historically subdued, resulting in a new record low rate of overall input price inflation during the month.