PMI contracts as private sector health continues to wane

Cape Town - Conditions in the private sector have continued to deteriorate amid a fragile economic climate, the Standard Bank Purchasing Managers' Index (PMI) showed on Monday.

The PMI rose to 49.0 in January, up from 48.4 at the end of 2017, signalling a continued deterioration in private sector health.

The headline PMI has now been below the 50.0 no-change mark for six successive months.

Output falling for the tenth month, weak client demand and a decline in new business for the sixth month running all point to a contraction in purchasing activity.

Economic optimism

Commenting on January's survey findings, Standard Bank economist Thanda Sithole said the January PMI data indicated that most sub-indices remained below the 50-point mark separating expansion from contraction, with the exception of the employment sub-index.

"In our view, the uptick in the private sector PMI towards the 50-point mark is in itself a positive signal and we expect continued uptick over the coming months premised on improved economic optimism following the improving domestic political backdrop and some government intervention to restoring good governance in state-owned entities.

"This - combined with pent-up demand - should underpin a reasonable economic recovery, although the upside is constrained by structural impediments," said Sithole.

Private sector employment rises

The survey also showed private sector employment in South Africa continued to expand in January. According to panel members, part of the reason for the increase was the expansion of people brought onto training schemes.

Work-in-hand began to accumulate in January, as backlogs increased for the first time in eight months.

Cost inflationary pressures continued, with purchase prices and staff pay increasing. However, the rate of total input price inflation was modest.

Higher cost burdens led firms to increase their average selling prices again, thus the growth rate was only marginal, with data suggesting that firms partially absorbed higher input costs, according to the index.