The Kagiso purchasing managers' index (PMI), a reliable health gauge of factory output, jumped to 52.5 from 50.3 in November, its highest level since April 2008.
A jump in business activity, inventories and new sales orders spurred the increase, which exceeded consensus forecasts for a more modest rise to 51.
SA's PMI has climbed for five consecutive months, and has now exceeded the 50-point cutoff between expansion and contraction for the second month in a row. This is good news for the economy because manufacturing accounts for 15% of overall output, making it the biggest sector after financial services.
It also suggests that activity in the sector quickened in the fourth quarter of last year, which could point to faster economic growth.
“Expectations would definitely be that we might get a surprise to the upside on growth in the fourth quarter,” said Andre Coetzee, head of fixed income and currency futures at Kagiso Securities.
The economy pulled out of recession in the third quarter of last year, helped mainly by a rebound in factory output, which was hard hit by the global downturn. But local manufacturing has lagged international trends.
Yesterday's survey showed the gap between global PMI compiled by JPMorgan and SA's PMI narrowed to 2.5 points from 13.75 points in August.
“The South African manufacturing rebound is now very close to being on par with the global trend,” Coetzee said.
The PMI measures sales orders and expectations among buyers of supplies for factories. It came in below 50 for 18 months in a row from May 2008 — the longest downturn in SA's history.
The business activity component of the index leapt to 55.1 last month, its highest since the middle of 2007 and compared with 47.3 in November.
New sales orders nudged up to 54.7 from 54.4. Inventories jumped to 55.6 from 48.4, suggesting businesses are finally rebuilding depleted stock levels.
“The latest PMI reading suggests the manufacturing sector is on the path to recovery, off a very low base, and should continue to rise in coming months,” Stanlib economist Kevin Lings said.
Latest data from Statistics SA show that factory output shrank 4.7% in November compared with the corresponding month in 2008 — a big improvement on a fall of 9.6% in October.
Expected business conditions six months ahead rose to 69.5 from 65 in November, after falling for two months in a row.
The employment component of the PMI improved to 48.2 from 46.6 — but shows that the sector is still shedding jobs, albeit at a slower pace.
The manufacturing recovery defies strength in the rand, which makes exports less competitive. The unit appreciated by about 28% against the dollar last year, making it the best-performing currency after Brazil's real. It has weakened slightly this year.
If the global recovery gathered momentum, with SA's main trade partner China leading the way, factory output could advance further, Coetzee said.
Goldman Sachs economist Javier Perez said “the better than expected PMI print was consistent with a gradual recovery of the South African economy driven by industrial and mining exports”.
This reduced the chance of another interest rate cut, but he still expected lower inflation to prompt the Reserve Bank to trim its repo rate by half a percentage point to 6,5% early this year.
The prices component rose to 48.2 from 46.6.
Source: Business Day
Published courtesy of
