HSBC's PMI higher at 51.1 for August

3 Sep 2014

Operating conditions improved in the local economy in August, the first improvement in five months, as production normalised after a strike-heavy first half of the year‚ the HSBC index indicated.

HSBC says that export orders are still subdued but there are signs of growiing confidence in the South African local economy among purchasing managers. Image: 3D Mask Fotolia

The HSBC purchasing managers' index (PMI)‚ which provides an early indication of operating conditions‚ rose to 51.1 last month from a record low of 46.4 in July. Readings above 50 signal an improvement in business conditions on the previous month.

Sentiment has been boosted by the conclusion of a month-long strike by workers in the steel and engineering sectors in July.

HSBC says output stabilised and new orders expanded slightly. However, new export orders contracted for a third consecutive month, indicating subdued external demand‚ which will weigh on the local economy's prospects.

"While the end of strike activity in key sectors should support stronger economic activity in the months ahead‚ the inflationary impact of high wage settlements was also evident in the HSBC South Africa PMI readings‚" said HSBC South Africa Economist David Faulkner.

The index showed that staff costs increased at their fastest pace in almost two years‚ putting upward pressure on overall input prices.

Moderation in inflation rates

According to Faulkner output prices also accelerated sharply suggesting that the recent moderation in consumer and producer inflation pressures may be short-lived‚

Faulkner said that the amount of new work placed with South African private-sector companies increased for the first time in six months‚ although the rate of growth in new work was marginal overall.

The country's private-sector companies also hired additional workers last month in line with the stronger trends for production and new orders.

"The rate of job creation was the sharpest since March and panellists linked this to increased workloads‚" Faulkner said.

Wage inflation hit a near two-year high last month‚ mainly linked by panellists to salary increases because of the strike by workers in the steel and engineering sectors.

The index showed that companies raised their selling prices last month in response to higher input costs.

This will add more pressure to growth in spending by households‚ which has already moderated given high inflation‚ higher water and electricity tariffs and higher interest rates that consumers have to deal with.

The HSBC PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in approximately 400 private-sector companies in manufacturing‚ mining‚ services‚ construction and retail sectors.

Source: BDPro via I-Net Bridge

Source: I-Net Bridge

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