Factory managers in the ailing sector are becoming more positive, according to the seasonally adjusted Kagiso PMI, which started this year on a positive note, gaining 2.9 index points to reach 54.6 - its highest level since last April.
The PMI reflects the percentage of purchasing managers in an economic sector who reported better business conditions in one month than in the previous month.
Conducted monthly by the Bureau for Economic Research and the Chartered Institute of Purchasing and Supply, it is a key indicator for manufacturing sector activity.
"The improved reading provides further evidence that the PMI decline to below 50 in September and October last year was largely the result of temporary, strike-related factors," Kagiso said.
Analysts expected a rise from 51.7 last month to 52 this month.
A reading above 50 points to an expansion in the sector, and one below 50 to a contraction.
Adenaan Hardien, an economist at Cadiz, said the reading was "quite a nice improvement".
"This is in line with global PMIs. Towards the end of last year, we saw improvements in real indicators around the world," he said.
"If we look at the production numbers which we have for up to November, we note a deceleration in activity in the second half of last year, so this new PMI reading can hopefully launch an improvement."
New sales orders, which Kagiso says make up 30% of the PMI reading, increased to 59.6 last month - the highest in almost a year.
Purchasing managers were also more confident about future factory business conditions. The PMI's expected business conditions index rose by 4.6 index points to 67.1 points, its highest level since the first quarter of last year.
"The higher reading may be indicative of the fact that the global and South African economic outlook brightened somewhat towards the end of 2010," Kagiso said.
The rise in both the PMI and the expected index showed that strong domestic consumer spending in the third quarter of last year was sustainable and foreign demand was picking up, according to Kagiso.
However, factory employment remained a concern, with the PMI employment index stuck below 50 for the ninth consecutive month.
"Having said that, the positive to take from the number is that it did not decline further, rising by 2.8 index points to 47.8," said Kagiso specialist consultant Theo Vorster.
Source: Business Day
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