Manufacturing activity stagnated last month but was in growth territory which, according to economists, suggested the sector would contribute only modestly to economic growth and job creation.
The Barclays purchasing managers' index (PMI), compiled by the Bureau for Economic Research (BER), remained unchanged at 51.4 points last month. The latest report was released yesterday. A reading above 50 suggests expansion in manufacturing activity.
headwinds facing the sector
The PMI has been stuck at levels of about 50 over the past few months, suggesting weak growth in manufacturing production, said MMI economist Sanisha Packirisamy."There are headwinds facing the sector including weak global and domestic demand, and supply-side constraints (power cuts)."
The PMI stood at 54.2 in January but fell to 47.6 in February. It remained below 50 until May when it reached 50.8, improving to 51.4 in June and last month. While the latter figure was "not great", it was still a positive signal, given that the manufacturing sector had to contend with severe electricity shortages during the month, Barclays economists Miyelani Maluleke and Peter Worthington said.
Although business activity improved, new sales orders declined "" which is in line with weak demand and low consumer confidence levels. The business activity subindex rose 1.5 index points to 53.2, its best level since January. The new sales orders subindex fell to 49.8.
Manufacturing is not due to meaningfully add jobs anytime soon, as the employment subindex shed 1.8 index points to 46.9. The sector shed 23,000 jobs in the first quarter, according to official Statistics SA data.
A mixed picture for SA
However, in what Barclays economists referred to as somewhat surprising, purchasing managers remained optimistic about the future. The subindex for expected business conditions in six months' time rose 1.2 index points to 63.2. "It could be that the sustained weakening trend of the rand exchange rate and improved news flow on the Greek debt crisis buoyed sentiment." The price subindex declined by 2.1 points to 75, in so doing reflecting the effect of lower commodity prices, particularly of oil.
The picture was mixed for SA's two main trading partners. The Caixin Chinese PMI fell to a two-year low of 47.8 in July. In contrast, the eurozone manufacturing sector continued to expand at a solid, steady pace at the start of the third quarter despite a slump in the Greek economy reaching 52.4 last month, above the earlier flash estimate that was put at 52.2.
During a presentation by MMI Investments yesterday, Packirisamy forecast SA's economy to grow 1.9% this year and at 2.3% next year. This is almost in line with several other projections, including that of the Treasury, which expects growth of 2% this year and 2.4% next year.
Projected growth would be supported by exports and companies rebuilding inventories after last year's mining and manufacturing strikes, Packirisamy said. This seemed to be already happening in manufacturing, with the inventories subindex of the Barclays PMI rising by a firm 3.4 index points to 60.2 - its highest level since January.
Source: Business Day
