Manufacturing growth slows, but the future looks brighter

Machines operate at Ford’s assembly plant in Silverton, Pretoria. Picture: Supplied

The seasonally adjusted Barclays purchasing managers index (PMI) fell by 1.2 index points to 52.5 in July. An above-50 reading indicates expansion in manufacturing activity.

Despite the slight drop, the current level still signals that the sector experienced a reasonably strong start to the third quarter after a robust performance during the second quarter, Barclays said on Monday.

The decline in the Barclays PMI was mainly driven by a 4.8-point drop in the business activity index to 49.5. The PMI’s leading indicator rose, suggesting that output growth may pick up again going forward, according to Barclays.

The new sales orders index rose slightly to 54.4 index points, signalling that the recent improvement in demand was sustained in July. Demand seemed to be supported by improved export performance, with some respondents still noting significant weakness in the domestic economy, Barclays said.

The price index fell by almost 10 index points to 72.1 points — the lowest level since April 2015. The stronger rand and lower international oil prices are offering manufacturers some input cost relief.

Purchasing managers were more optimistic about future business conditions, with the index measuring expected business conditions in six months’ time rising to 55.4 in July from 52.9 in June. "This means that, barring any unexpected disruptions to output, the sector could continue its recovery during the second half of 2016," Barclays said.

The Barclays PMI remained in line with recent eurozone manufacturing PMI readings.

The eurozone is a key export market for locally produced goods.

Initial data releases suggest that the eurozone economy has so far remained relatively resilient after the UK’s Brexit vote, which was encouraging for the local sector’s export performance going forward, Barclays said.