Kagiso PMI sheds 7.4 points to 49.1 in September

This is the first time in five months it has been a contraction in the index.

The monthly Kagiso PMI is a leading indicator of activity in the manufacturing sector‚ where a level below 50 suggests a contraction in activity while that above 50 points to expansion.

Its sponsor‚ Kagiso Tiso Holdings‚ said the PMI was now lower than the PMI readings of China and the eurozone‚ two of SA's main trading partners.

The flash eurozone manufacturing PMI remained relatively stable at 51.1 in September‚ while the final HSBC manufacturing PMI for China was unchanged at 50.2 points.

The organisation representing local producers‚ the Manufacturing Circle‚ has blamed the Kagiso PMI declines on the protracted industrial action in the vehicle manufacturing‚ automotive components and platinum sectors.

Further job losses

Manufacturing Circle executive director Coenraad Bezuidenhout warned of job losses if industrial action is not prevented in future. He said this could affect economic growth "markedly"‚ and lead to job losses as manufacturers contract or mechanise to stay in business.

Following a significant improvement to 59.2 in August‚ the business activity index fell to 46.7 in September.

Kagiso asset management head of research Abdul Davids pointed out that despite the weak monthly figure‚ the quarterly reading was more optimistic as the index measured 52.6 in the third quarter‚ up from 51.7 in the second quarter and 49.8 in the first quarter.

The new sales orders index lost 9.4 points‚ reflecting the knock-on effects on the wider manufacturing sector from the prolonged strike in the vehicle manufacturing sector.

"Intermittent mining sector disruptions and fear about future industrial action may also be weighing on manufacturers‚" Davids said.

"If this is the case‚ an end to the vehicle component strike and a quick resolution to the Association of Mineworkers and Construction Union's (Amcu) strike in the platinum mining sector should see an imminent rebound in activity and orders‚" he said.

Some positive signs

After moving above 50 in August‚ the employment index lost 1.7 points to end at 49.5 in September.

On a quarterly basis‚ the employment index‚ at 49.4‚ suggested a recovery in factory-sector employment was unlikely over the short term. However‚ the third-quarter average was a solid improvement on the bleak 44.7 recorded in the second quarter.

Bezuidenhout said employment prospects in the sector were a sign that labour laws needed to be addressed to make it easier to hire people.

"President (Jacob) Zuma will have to decide how long his government will shore up organised labour at the cost of economic growth and jobs‚ and the growing exclusion of the unemployed and the poor‚" he said.

The price index declined by 4.5 points to 82.7. Davids said that while this easing was probably due to a more stable oil price in September‚ the index was still at a relatively high level.

"We expect this index to remain high as Brent crude oil prices remain elevated and the rand exchange rate fluctuates around the R10 level to the US dollar‚" he said.

The index indicates that purchasing managers are less optimistic about future prospects.