Manufacturing surge lasts one month
From a surprisingly robust 54.9 points in April, the Barclays purchasing managers’ index (PMI) dropped to 51.9 index points in May — a level the Bureau for Economic Research (BER) said was probably more indicative of actual conditions in the sector.
"The pullback in key manufacturing PMIs in May does not surprise us and paints a more accurate picture of the … tentative state of the domestic manufacturing sector," agreed BNP Paribas Securities economist Jeffrey Schultz.
Despite the drop, the headline PMI managed to remain above the neutral 50-point mark for a third straight month.
This brings it more or less in line with PMIs in the eurozone, a key market for the country’s manufactured exports.
All but one of the major subcomponents of the PMI declined in May from April, according to the BER, which compiles the index. Of these, the new sales orders index experienced the biggest decline (-6.6 index points).
It still remained above 50, however, as did the business activity index, although it dropped to 52.9 in May, from 56.4 in April.
"While some respondents indicated an improvement in export demand, local demand remained under pressure," the BER noted.
Investec economist Kamilla Kaplan expects manufactured exports to be restrained by the persistence of soft international trade flows given the lack of exuberance evident in global PMIs.
SA’s employment index fell back below 50 points, to a level of just 48 in May.
"This is more in keeping with the dire labour market conditions currently being felt in the sector, given the loss of 100 000 manufacturing jobs in the first quarter," said Schultz.
But the future is not totally bleak. Purchasing managers remain relatively upbeat about the state of business conditions in six months’ time.
Although the index measuring expectations declined slightly, it still remained at a healthy 54.1 index points.
The BER also noted that the new sales orders index remained slightly higher than the inventories index in May.
This means that the PMI leading indicator stayed just above one, which suggests that output could tick up in the coming months.
In contrast, economists see little scope for any meaningful improvement in manufacturing conditions any time soon, given the weakness in global and domestic demand conditions, depressed business confidence and the soft domestic jobs market.
Moreover, manufacturers are facing renewed cost pressures. After slipping to a four-month low of 77.7 points in April, the price index rose to 80.1 in May.
This was probably driven by renewed rand weakness as well as a rise in international oil prices towards $50 a barrel last month, the BER said.
The upshot was the hefty fuel price increases, effective from Wednesday, which will continue to keep manufacturers’ input costs under pressure.