The Absa purchasing managers’ index (PMI), a measure of the manufacturing sector’s health, rebounded strongly in August after suffering a record single-month decline in July due to unrest and looting that rocked SA.
The PMI climbed back up to 57.9 points from 43.5 in July, which was a 14-month low and a record one-month drop in the measure of almost 14 points from the 57.4 reading in June. The move in the Absa PMI, which is published in conjunction with Stellenbosch University’s Bureau for Economic Research (BER), to a level back above the neutral level of 50 index points will be a welcome sign that manufacturing activity is picking up again.
The monthly survey is done by polling the purchasing managers of factories across SA on whether certain business condition indicators such as sales orders have increased, decreased or remained unchanged from the previous months. Their answers are converted into an index with a value of 50 indicating no change in activity while a reading above 50 shows expansion and a sub-50 measure indicates a drop in activity.
“A normalisation of demand and output for businesses affected by July’s looting and a further boost from less strict lockdown restrictions meant that a recovery was always on the cards given that the survey tracks month-on-month movements in business conditions,” Miyelani Maluleke, an Absa CIB senior economist, said in an emailed statement on Wednesday.
“The extent of the rebound is nonetheless encouraging, especially on the orders and activity front. That being said, even if September’s headline PMI print remains at the elevated level seen in August, the third quarter as a whole will be lower than the second quarter due to the severity of the shock experienced in July.”
While manufacturing activity plunged in July as the widespread looting and unrest that erupted in the wake of former president Jacob Zuma’s imprisonment resulted in damage to factories and supply chains, the Absa PMI had remained above the neutral 50 level for 11 consecutive months prior to that decline. The resumption of the expansion in manufacturing activity in August signals a continuation of that trend, though optimism may be tempered by the ongoing Covid-19 pandemic which continues to undermine the economy.
Both the business activity and new sales orders subcomponents erased July’s losses, returning to more normal levels in August. The business activity measure came in at 58.5 points in August and new sales orders at 60.9 — both about 30 points better than their July readings.
Subsectors with links to the hospitality and liquor industries also recovered from the July looting shock, a factor that was likely helped by an easing of lockdown restrictions and rising export sales. The inventories index recovered to reach 54 points in August, from the extremely weak reading of 39.1 in July.
Unfortunately the employment index did not follow the improving trend in the other subcomponents of the Absa PMI and continued to edge down further, falling to 47.1 in August from 47.6 in July. That bodes ill for SA’s jobless rate, which reached a record 34.4% in the second quarter of 2021, suggesting the overall unemployment rate of the country could worsen further once the effect of the unrest is reflected in third quarter data.
The Absa PMI subcomponent that tracks expected business conditions in six months’ time fell to 59.7 in August, from 64.3 in July. That indicates that purchasing managers are less optimistic about future business conditions in the country, which may be due to both the ongoing pandemic as well as the enormous dent to confidence suffered in the wake of the July unrest.
The non-seasonally adjusted purchasing price index ticked up again in August after four consecutive monthly declines. This was most likely due to higher fuel prices at the start of August coupled with a weaker rand that made imported raw materials more expensive.
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