PMI up from 45.9 in July to 49 in August

2 Sep 2014

Activity in the manufacturing sector improved last month as workers that had gone on a month-long strike returned to work‚ boosting the purchasing managers' index (PMI)

Kagiso's Abdul Davids says a sharp increase in manufacturing activity indicates that the outlook for South Africa's manufacturing sector is improving. Image: Kagiso

The Kagiso purchasing managers' index (PMI) rose 3.1 index points to 49 last month.

Despite the improvement‚ August marked the fifth consecutive month of contraction in activity. The index needs to be above 50 to indicate that activity in manufacturing is expanding.

The below-50 reading suggested that conditions in the factory sector are still relatively subdued‚ head of research at Kagiso Asset Management Abdul Davids said.

A strike by workers in the steel and engineering sectors in July negatively affected output at manufacturing plants. Their strike followed one at platinum mines which had severely disrupted manufacturing output.

Davids said the improvement in the Kagiso PMI was particularly visible in the sharp increases in the business activity and new sales orders sub-indices.

Sales orders rise

The new sales orders index rose from 45.4 in July to 49.8 index points in August - the highest level since February‚ while the business activity index rose eight index points to 47.4 in August.

"While demand in the broader economy remains weak‚ the slow return to normal production levels in the platinum mining and metal sectors supported the improvement in new sales orders and business activity levels‚" Davids said.

Another sub-index showed the extent to which local producers were still grappling with rising administered costs. The price index rose for a third consecutive month to reach 77.3 last month from 76.5 in July mainly because of sharp increases in the petrol and diesel prices during the month.

Producers were also slightly more optimistic about the future as the index measuring expected business conditions in six months' time jumped to 56.3 index points from 55.4 in July.

Davids said that the local Kagiso PMI continued to diverge from international PMI figures‚ with the US PMI rising to 58 index points while both the eurozone and Chinese PMI readings remained above the key 50-level in August.

Source: BDPro via I-Net Bridge

Source: I-Net Bridge

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