Kagiso PMI falls to 45.9 in July

© Kheng Guan Toh - Fotolia.com

This was suggested by the Kagiso purchasing managers index (PMI)‚ which indicates activity in the manufacturing sector.

The index fell to 45.9 in July from 46.6 in June - remaining below the desired 50 level. An index level of above 50 is required to point to an expansion in manufacturing activity.

Kagiso Asset Management's head of research‚ Abdul Davids‚ said the manufacturing sector's sub-par performance during the past few months was largely a result of labour strikes in the platinum‚ steel and engineering sectors.

The strike at platinum mines lasted five months‚ while the one in the steel and engineering sectors lasted almost a month.

"Given that these issues‚ for the most part‚ have now been resolved and production should ramp up in coming weeks‚ the sector should recover during the remainder of the year‚" Mr Davids said.

The business activity sub-index fell to 39.4 points in July - its lowest level in three years - as conditions in manufacturing worsened as a result of the strike in the steel and engineering sectors.

The employment sub-index deteriorated in line with the depressed business activity to 43.9 points in July from 49.3 previously.

The new sales orders sub-index rose marginally to 45.4 - remaining below the key 50-point level.

"Order volumes could recover in coming months if local demand picked up after the strike-related disruptions"‚ Davids said. "The improving global demand could further support the sector."

Price pressures facing producers increased slightly‚ with the price index rising to 76.5 points from 73.8 points‚ partially due to higher fuel prices in July.

"While the rand did strengthen somewhat during the second half of July‚ the sustained weak level may have placed further upward pressure on the costs of imported input products‚" Davids said.

He warned that double-digit wage settlements could significantly increase costs.