The manufacturing sector proved resilient in December, growing for a third month running despite sustained and intense power cuts, an industry survey found.
The Bureau for Economic Research (BER) in Stellenbosch released its Absa purchasing managers’ index (PMI) on Friday, which showed improvement in manufacturing activity, with the index rising to 53.1 points in December from 52.6 in November.
A reading above 50 points suggests expansion in the sector and one below 50 signals contraction.
Manufacturing is SA’s fourth-largest sector, contributing 14% to GDP. The numbers provide valuable insight into the health of the economy.
The latest labour statistics showed the sector created the highest number of new jobs in the third quarter.
The sector had a difficult operating environment in 2022. It had to contend with power and water cuts, floods in April, Transnet’s woes including the October strike, and continued pressure on production costs.
While the headline Absa PMI number is positive, the subindices show a mixed picture.
Absa senior economist Miyelani Maluleke said that of greatest concern was the business activity index, which deteriorated further in December, ending the year at 45.2 from November’s 49.5.
“The index has failed to rise above the neutral 50-point mark through the year. This is indicative of weak underlying momentum in the sector,” said Maluleke. Sustained and intense load-shedding in December was probably a key drag on the sector.
The renewed uptick in the supplier deliveries index is also worrying, said Maluleke.
Absa data shows that after a few months of little change, the supplier deliveries index ticked up by 4.1 points in December. This index is inverted, so slower deliveries, often caused by higher demand for goods, cause the index to rise.
Maluleke said this points to renewed friction in supply chains rather than robust demand, causing a lengthening in delivery times. “There is a likelihood of further near-term global supply chain disruptions stemming from the rapid reopening of the Chinese economy accompanied by surging Covid-19 infections.”
Subindices that had a positive impact on manufacturing activity include new sales orders, expected business conditions and the employment index.
The employment index shot up by 8.6 points to 54.3 in December, moving into positive territory from November’s 45.7.
The new sales orders index was also encouraging, staying above 50 points.
Another positive development was a rise in the expected business conditions index which measures business conditions in six months.
“Purchasing managers turned more optimistic about business conditions with the index rising to 54.9 in December from 51.7 in November,” said Maluleke.
“The expectation that the peak in cost pressure is behind us may have underpinned the more optimistic outlook.”
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