Cape Town - There are positive signs that the manufacturing sector started the year on a solid footing, according to the latest Absa Purchasing Managers’ Index (PMI) released on Wednesday.
The seasonally adjusted Absa PMI, compiled by the Bureau for Economic Research (BER) at the University of Stellenbosch, rose by a further 1.6 points to 52.5 index points in February, after a rise of 4.2 points in January.
According to the BER, this second consecutive improvement in the PMI and the broad-based nature of the uptick across the key subcomponents is a positive sign that the manufacturing sector started the year on a solid footing.
Four of the five major subcomponents are above the neutral 50-point mark and the headline figure is at the highest level since June 2016. After the increases recorded in January and February, the headline figure is closer to that of South Africa’s main trading partners after underperforming through the second half of 2016, the BER said in its PMI report.
BER economist Lisette IJssel de Schepper told Fin24 that the most positive development in the recent PMI was the new sales orders index. Not only did it stay above 50 index points for a fourth month, but it is also at quite a high level. At 55.7 points, the index is now at its best level since April 2016.
"Any level above 50 generally signals growth. Factors making a positive impact would include the improvement in export orders indicated by some respondents and the recovery in the agriculture sector possibly also helped," said IJssel de Schepper.
The sustained recovery in demand helped lift the business activity index to 53.2 index points in February, up from 52.7 in January.
On the other hand, it is concerning to IJssel de Schepper that the employment index is not really improving.
"We would have to see other indicators improving for a sustained period before we will see employment growth. Over the longer term we would also have to see how local consumer spending holds up," she added.
READ: Manufacturing in SA: Do you want the good news or the bad news?
Purchasing price index
On the back of the sustained strengthening trend for the rand, the purchasing price index moved lower in February. The index declined to 68.0 from 72.4 in January - the highest level since June 2016.
After surging to the highest level in almost seven years, the index measuring expected business conditions in six months’ time remained high in February. It did decline somewhat to 67.8 index points from 70.3 in January, but - excluding the January figure - this was still the most optimistic purchasing managers have been about the near-term future since the start of 2015.
The PMI leading indicator also improved to above one in February, suggesting that production may pick up with orders outstripping inventories, according to the BER. A key risk to this relatively upbeat outlook is the possibility that the significant tax hikes announced in Budget 2017 may depress consumer spending going forward.
Read Fin24's top stories trending on Twitter: