SA business activity jumped to a 13-month high in June, pointing to the fastest expansion in the country’s private sector activity since May 2021.
The S&P Global SA purchasing managers index (PMI), which was released on Tuesday, was at 52.5 in June from 50.7 in May.
This is its highest reading in just more than a year. The S&P Global SA PMI tracks business trends across the private sector, including mining, manufacturing, services, construction and retail, based on data collected from a representative panel of about 400 companies.
It looks at variables such as new orders, output, employment, supplier delivery times, inventories and prices. A reading above 50 indicates expansion in business activity while a reading below 50 indicates that it is generally declining.
All five sub-components of the PMI had a positive directional influence in June, particularly the new orders index, which rose to a 13-month high and signalled a solid upturn in sales.
The expansion is linked to a recovery in economic conditions, especially in KwaZulu-Natal after floods earlier in 2022.
As a result of output and new orders increasing at a faster pace, the rate of job creation index also picked up.
S&P Global Market Intelligence economist David Owen said SA companies reported a solid expansion in employment levels at the end of the second quarter, with the rate of job creation picking up to the fastest in a year.
“The uplift in staffing capacity helped firms to complete new work and further deplete their backlogs,” Owen said.
Business sentiment also ticked higher in June, after hitting a 10-month low, reflecting the hope that new orders will keep strengthening.
However, the degree of positivity continues to be one of the weakest seen over the past year, weighed down by concerns about price rises, supplier delays and the war in Ukraine.
Purchasing activity also increased to fulfil new orders. Several companies decided to stockpile raw materials in an effort to protect against future inflation, making stock levels rise for the first time since January and the most in almost five-and-a-half years.
Some negative factors are still affecting some indices.
Data shows that improvements in business conditions were slightly held back by inflationary pressures.
Businesses remained under considerable pressure from rising input costs, worsened by a surge in global fuel prices and supply-side challenges. Data also suggests that the SA economy is facing a period of severe inflation in the second half of the year.
The input prices index reached its highest level since March 2014. Rising fuel costs were of particular concern, driving the strongest increase in business expenses in eight years.
Local companies also continued to experience delays in the supply of raw materials over the month, often linked to a lack of availability, the war in Ukraine and lockdowns in China.
Owen said the war in Ukraine and lockdowns in China affected material costs as well as input costs and “delaying the recovery in supply chains, leaving a number of businesses without the required inputs to run at normal capacity”.
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