Manufacturing conditions recovered in November with business activity, new sales orders and employment moving into positive terrain, even as firms negotiated the load-shedding that has plagued SA in recent weeks.
The latest Absa Purchasing Managers’ Index (PMI) — a monthly gauge of sentiment in the manufacturing sector and an early indicator of underlying economic activity — rose to 57.2 points, the highest level for the headline PMI since May, before the third wave of Covid-19 and social unrest sent shock waves through the economy in July.
The rebound, however, faces headwinds with the emergence of the Omicron variant and the looming fourth wave of the pandemic, with this uncertainty reflected in a souring of expected businesses conditions in the coming months.
The PMI is based on a survey of respondents in the manufacturing sector conducted by the Bureau for Economic Research (BER), which covers activity such as new sales orders, business activity and employment. A reading above 50 points indicates expansion in the sector, while anything below 50 points indicates a contraction.
Business activity and new sales orders, which had been hard hit by a strike in the metals and engineering sector during October, both improved, moving back into expansion territory, according to a statement from the bank.
Business activity recovered despite load-shedding throughout November, which some respondents mentioned as a constraint on activity, according to the statement.
That suggested that especially the larger manufacturers were becoming less sensitive to load-shedding, probably through the increased use of generators or more efficient energy consumption, the bank said.
Though Stats SA reported actual manufacturing production shrank 3.9% during the third quarter of the year, the uptick in business activity results “bode well” for a “sizeable” recovery in the fourth quarter, it said.
The employment index rose to 50.6 points, its first foray into positive terrain since June.
“While undoubtedly positive, the decline in the expected business conditions index, as SA moves towards a fourth Covid-19 wave, argues against a sustained rise in factory sector employment at this stage,” the bank said.
The manufacturing sector — which contributes 12.6% to GDP and accounts for 9.8% of all jobs — lost 13,000 jobs between the second quarter and third quarters of 2021, though this was at a slower pace than the 83,000 jobs shed between quarter two and quarter one of 2021.
The expected business conditions subindex — which gauges how participants’ view expected conditions for the coming six months — slid five points to 56.8 in October.
According to the statement, more than a third of the November PMI responses were received after the announcement that a new Covid-19 variant was responsible for the recent sharp infection rise in Gauteng and the subsequent widespread travel bans imposed on SA.
The discovery of the new variant in Southern Africa triggered a number of travel bans from important tourist markets, dampening expectations for consumer spending over the seasonally significant festive period, Investec economist Lara Hodes said in a note.
While SA remains on lockdown level 1 for now, a sharp spike in cases could see the implementation of further restrictions and high levels of uncertainty continuing to weigh on confidence, she said.
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