PMI falls to 46.2 points in September

The PMI is a key leading indicator for activity in the manufacturing sector and is conducted on a monthly basis by the Bureau for Economic Research (BER) and the Chartered Institute of Purchasing and Supply.

An index level of below 50 represents contraction in the manufacturing sector‚ while a reading of more than 50 signifies expansion.

Andre Coetzee‚ managing director of the Chartered Institute of Purchasing and Supply said that the pullback did not bode well for actual factory output in the third quarter. Manufacturing production declined by 1% quarter-on-quarter and on an annualised basis during the second quarter.

"Based on the PMI‚ the deterioration in the local manufacturing sector has been stark in recent months‚" Coetzee said.

The PMI averaged 54.7 points during the first five months of this year and then lost ground to average only 48.9 between June and September this year.

The domestic PMI is now on par with the trends in the factory sectors of South Africa's key trading partners‚ Coetzee said.

The official September PMI for China released on Monday is 49.8 and the initial reading for the EU remains below 50.

"Concerns about domestic manufacturing production were reinforced by the business activity index‚ which fell by a significant 7.6 index points to 43‚" Coetzee said.

"One has to go back to July 2011 - a period when the manufacturing sector was hit by widespread industrial action - to find the index at a weaker level."

The activity sub-index was responsible for almost half of the overall PMI decline.

Business activity measured 48.1 for the third quarter as a whole‚ down from 53.6 during the second quarter and 58.9 in the first three months of the year.

New sales orders remained soft‚ losing 0.7 index points to 46.2. Another important feature of the September PMI was that the price index increased further after the 8.2 index point jump recorded in August.

The price component rose by another 4.9 points to 75.8‚ its highest level since January this year.

Coetzee added that as expected, the PMI employment index lost 4.5 index points to 46.5.

On a more positive note‚ following three consecutive months where purchasing managers downgraded their outlook for future business activity‚ the expected business conditions index gained 2.6 points to 55.5 during September.

"The somewhat more upbeat prospects were corroborated by the PMI leading indicator‚ which rose from 0.90 in August to just below 1 at 0.99. The leading indicator measures the ratio between new sales orders and inventories - any number below one indicates that inventories exceed the demand for manufactured goods‚ which normally does not bode well for factory sector production‚" Coetzee added.