Manufacturing activity in SA expanded again in May and at a faster pace than before, as domestic demand normalised and export sales moved towards positive territory, an industry survey shows.
The Absa purchasing managers’ index (PMI) rose to 54.8 in May from 50.7 in the previous month, which was the lowest PMI level since the July 2021 unrest.
The sharp drop in the index in April was because of the damaging floods in KwaZulu-Natal, Absa said, but activity still remained in expansionary territory.
A value above 50 index points the indicates increased activity and below 50 indicates decreased activity.
Absa’s PMI is a monthly survey of purchasing managers in SA’s manufacturing sector, and provides an indication of prevailing trends and business conditions. The survey is compiled by Absa and the Bureau for Economic Research (BER).
The improvement in the May PMI reading was in line with economists’ expectations.
The bank said the new sales orders index saw a significant recovery at 58.5, up from April’s 43.6, largely underpinning the increase in the headline PMI during May.
“Domestic demand conditions normalised following the flooding, while export sales also returned to positive terrain. This suggests that last month’s deterioration on the export front was mainly caused by the Durban port disruptions rather than signalling the start of a drop in global demand for SA goods,” Absa said.
Another positive movement was noted in the index tracking expected business conditions in six months’ time, which increased notably in May.
The index rose to 63.3 after averaging 55.4 in the preceding two months. Absa senior economist Miyelani Maluleke said even though it was difficult to point to a single factor to explain the improvement in the index reading, there was optimism that cost pressures at the start of the pipeline had peaked, which may have explained some of the improvement.
The purchasing price index also edged down for a second month after reaching a record high in March, mirroring global movements that suggest input cost inflation had started to moderate in May as raw material inflation began cooling.
But it is not all good news. The overall PMI did not recover all the ground lost in April as it continues to read below March’s 60-point reading.
Absa said the average for the first two months of the second quarter was almost six points below the average recorded in the first quarter. The bank said despite the solid rebound in demand, business activity was stuck just below the neutral 50-point mark in May.
“This could be due to continued load-shedding and industrial action affecting output, but not necessarily weighing on demand,” Absa said.
Data shows that the business activity index for April and May is well below 50, which suggests that actual manufacturing output may record a quarterly contraction in the second quarter.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.