Conditions in SA’s manufacturing sector deteriorated more than expected at the end of the third quarter, weakened by poor demand and production, a survey found.
The Absa purchasing managers’ index (PMI) released on Monday shows manufacturing activity declined 4.3 points in September to 45.4, following August’s 49.7 and below consensus expectations of 49.5.
Manufacturing is a R513bn sector in real gross value-added terms and comprises 11.2% of the economy, down from 15% in 1995.
The sector has remained below the 50-point neutral mark since February, with the decline in September a result of poor global demand caused by sluggish growth momentum in the eurozone and the UK, both key export markets for local manufacturers, Absa senior economist Miyelani Maluleke said.
Maluleke said on the domestic front, demand was restricted by elevated borrowing costs and the sharp fuel price hikes at the start of September.
“It was also a poor month for production compared to August,” Maluleke said. There was a step-up in load-shedding during September. Along with poor demand conditions, this may help to explain the low level of activity during the month.”
A closer look at the Absa PMI, which is compiled by the Stellenbosch-based Bureau for Economic Research (BER), shows that September saw an outsize drop of more than 10 index points in the new sales orders index, from 45.7 August to 35.3 in September, levels last seen in mid-2021.
BER data shows that the index has been stuck below the 50-neutral mark that divides expansion from contraction since January, indicating weakening demand in some of SA’s major export markets, as well as domestically.
The business activity index also saw a large drop, tanking by 8.1 points to 41.9 in September from 50 previously.
The index was extremely volatile in the third quarter, Maluleke said.
“It averaged 43.3 for the quarter, down from an average of 48.1 in the second quarter,” he said. “The move lower would be consistent with a quarterly contraction in actual manufacturing output. If this materialises, it will weigh on overall GDP growth momentum in the third quarter.”
The employment index showed a slight improvement, increasing to 43.8 in September from 42.8 previously, but remains in depressed territory.
This is in line with the latest official data from Stats SA showing formal sector employment in the manufacturing sector declined by 10,000 jobs quarter on quarter in the second quarter.
The PMI shows the employment index for three months ending September was poor in terms of job creation in the manufacturing sector.
The supplier deliveries index remained elevated in September posting at 62 from 61.9 previously.
Maluleke said with the PMI demand indicators weak in September, the fact that the supplier delivery index remained high suggests some lingering supply-side issues following disruptions in July, with the truck torchings on the N3 and the Western Cape taxi strike in August.
The purchasing price index moved higher for the second month in a row.
The movement was consistent with sustained rand weakness and the sharp move higher in international oil prices during the past month.
Another significant diesel price increase of more than R1.50/l is on the cards in October.
On a more positive note, purchasing managers do not expect the current tough trading conditions to persist. This is captured in the index measuring expected business conditions in six months, which rose to 55.6, the highest level since March.
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