Kagiso PMI falls to 49.3

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

The pullback in the Kagiso PMI was largely driven by significant declines in the new sales orders (8.2 points) and business activity indices (4.5 points).

Kagiso Asset Management head of research Abdul Davids said the decline in the new sales orders index suggested that an environment of rising demand was less widely dispersed throughout the sector than was the case in February‚ when the index recorded a 9.3 point gain.

"In light of slowing domestic consumer spending and the prolonged recession in Europe‚ the current level of new sales orders is probably more realistic‚" he said.

Production also under-performed in March‚ with the business activity index falling to 47.7.

Despite this decline‚ the average level for the first quarter of this year moved up to 49.8 from 45.5 in the fourth quarter of last year.

However‚ the deterioration in both demand and production was negative for employment‚ as shown by the 3.1 point decline in the employment index.

"This suggests that the manufacturing sector may have shed jobs in the first quarter of 2013‚" said Davids.

Input costs continued an upward trend established over the past few months‚ with the price index rising by 1.3 points to 87.3.

"The rand averaged R9.11/US$ in March compared with R8.85/US$ in February and this sustained weakening of the rand is placing significant upward pressure on input costs that are predominantly US dollar-based‚" Davids said.

The expected business conditions index fell by nearly 10 points to 47‚ indicating purchasing managers' waning optimism about future business conditions.

"Renewed concerns for the outlook for the European economy - our largest export market - especially in the wake of the Cyprus bailout may have fuelled the downbeat business expectations‚" Davids said.

"This is further borne out by the PMI leading indicator (the ratio of new sales orders to inventories) that slipped back below one," he added