Economy News South Africa

Subscribe to industry newsletters

Search jobs

Steel strike & loadshedding sees drop in October's Absa PMI

The seasonally adjusted Absa Purchasing Managers' Index (PMI) dropped almost four points, to 53.6 in October from a downwardly revised 54.7 in September, largely due to the three week steel and engineering strike and Eskom loadshedding for notable periods during the month.
Source: © Jozef Polc
Source: © Jozef Polc 123rf

Seen in isolation, these adverse events had the potential to push the business activity index, orders and the overall PMI even lower.

Countervailing force

However, there was also an important countervailing force in October.

The move to Level 1 lockdown restrictions and the sharp decline in new domestic Covid-19 cases in recent weeks to below the trough of new infections reached before both the second and the third wave has facilitated increased mobility.

This is likely to have supported consumer spending and may have shielded the manufacturing sector somewhat and would have been particularly relevant in manufacturing subsectors that were not directly or indirectly impacted by the Numsa strike in the steel sector.

Business index

As suggested by the August PMI business activity reading, actual month-on-month Stats SA manufacturing production rebounded strongly in August.

However, the increase was unable to undo the stark decline in July.

The September and October business activity readings indicate that the rebound in factory output likely stalled post August.

Several PMI respondents mentioned the adverse impact that the prolonged strike in the steel and engineering sector had on their operations in October.

New sales order

The new sales orders index dropped back below the key 50 mark in October.

Of interest is that respondents refrained from highlighting load-shedding as a possible reason for this.

Instead, the negative spillovers from the Numsa strike seemed to be top of mind.

On a positive note, selected respondents mentioned a strong boost to sales from the move to Level 1 lockdown restrictions as well as from retailers starting to stock up for the Christmas holiday period.

Pre-emptive stock building in the retail sector may be a particular feature this year amid concerns about severe global supply chain constraints.

Even so, the almost five-point decline in the new orders index to below the neutral 50-point mark suggests that the demand for manufactured goods suffered a meaningful knock in October.

Respondents reported slightly improved export sales in October, emphasising that it was domestic constraints that weighed on the demand for manufactured goods.

Employment indicator

With activity and sales under pressure, it is not surprising that the employment index was again firmly rooted below 50.

The uncertainty surrounding reliable power supply and the labour unrest in an important subsector of manufacturing do not bode well for employment prospects in the factory sector.

Moving to price pressures, after forestalling the acceleration in the producer price index (PPI) for final manufactured goods in September, the PMI purchasing prices indicator fell back slightly in October.

With a large fuel price hike on the cards for November, the reprieve on input cost pressures is likely to be temporary.

Looking forward, respondents remained upbeat about an improvement in business conditions over the next six months.

Let's do Biz