Revival at factories gives rare jobs boost

The Kagiso purchasing managers index (PMI), a reliable health gauge of factory output, rose to 53.6 from 52.5, signalling that the rebound in the economy's second-biggest sector was gathering momentum.

South African manufacturing has lagged the global recovery but is starting to catch up, with its PMI above the crucial 50 cutoff point between expansion and contraction for three successive months.

“The recovery in the sector is gaining momentum ... it's good news,” said Hugo Pienaar, an economist at the Bureau for Economic Research.

SA's factories were hardest hit by the global downturn, dragging the economy into recession in 2008. A pick-up in activity in the third quarter last year prompted a modest rise in overall growth.

But the economy shed almost 1 million jobs last year, with the formal nonfarm sector's heaviest losses in manufacturing and retail.

Improved employment outlook

The survey showed that the employment component of the PMI rose by 3.7 points to 51.9, breaking above 50 for the first time since April 2008.

“Although one should not get too excited about a single month's data, the level of the index suggests an improved outlook for factory job creation,” said Kagiso's head of fixed income and currency futures, Andre Coetzee.

Business activity and new sales orders rose within the PMI, which measures sales orders and expectations among purchasers of supplies for factories.

Expected business conditions soared to 73.3 points from 69.5, the highest level since mid-2005. Inventories dipped to 51.8 from 55.6, while the backlog of sales orders dived to 29.9 from 44.

Coetzee said this mainly reflected seasonal trends.

The price component dipped to 52.8 from 55, which bodes well for the inflation outlook.

'Sweet spot'

“The PMI reading makes us more confident that the cyclical upswing in the economy is continuing,” Citigroup economist Jean-Francois Mercier said.

But the improvement in SA's manufacturing sector stems from growth in exports and restocking of inventory. The data helped to create a “sweet spot” of improving output and receding inflation, but not enough to prompt another cut in interest rates, Mercier said.

Strength in the rand, which nudged firmer after the PMI, is seen as a threat to the appeal of local exports in global markets.

The unit firmed 1.6% to R7.50/ late yesterday, supported partly by the data but mainly by revived global risk appetite.

Global manufacturing on the rebound

Similar surveys in the world's major economies yesterday showed manufacturing rebounding strongly. China's industry expanded at a near-record pace. US factory activity rose to 58.4 last month — its highest level since 2004 — from December's 54.9.

Europe's factory output grew at its fastest pace in two years, but the surveys showed a widening split between sluggish Spain, Greece and Ireland compared with Germany, France and Italy.

Official data for SA show factory output in November was 4.7% down on the previous November's, its smallest annual fall in more than a year.

Source: Business Day