SA’s manufacturing activity made a poor start to the fourth quarter, falling to levels last seen in July when prolonged disruptions on the N3 transport corridor resulted in a temporary shortage of inputs, negatively affecting production.
The Absa purchasing managers’ index (PMI) released on Wednesday, compiled by the Stellenbosch-based Bureau for Economic Research (BER), shows the headline index dropped further to 45.4 index points in October, from an upwardly revised 46.2 during September. This marked its sixth consecutive month in contractionary territory, below the 50-neutral mark.
This does not bode well for fourth-quarter economic growth as manufacturing is the fourth-biggest sector, employing nearly 1.2-million people.
In terms of the major subindices of the headline PMI, the biggest drag came from the seasonally adjusted business activity index, which declined by a further 2.8 points to an already low 40.3.
Absa economist Sello Sekele said given that the frequency and intensity of load-shedding eased notably in October, the weak performance from the activity index is perplexing.
“The drop corresponds with sustained weak readings on demand,” Sekele said. “Notwithstanding a minor increase, the PMI new sales orders index remained below 40 index points for the second consecutive month.”
He said with the PMI export index performing better in October, the sustained weaker level for new sales orders largely reflects weak domestic demand for manufactured goods.
“On the consumer front, elevated food and fuel prices, as well as restrictive borrowing costs, are depressing demand for local manufactured goods,” he said.
He added that industrial demand, constrained mining output amid soft coal and platinum group metal prices, as well as failing railway and port efficiencies, may help to explain the lacklustre PMI production indicator.
A breakdown of the data shows the business activity index performed even worse in October, falling to 40.3 from 43.1, after losing plenty of ground in September.
While the new sales orders index ticked up in October, to 39.7 from 38.1, it remains below 40, further highlighting weak underlying demand for manufactured goods.
Weak output and demand conditions also affected the employment index, which lost further ground in October, falling to 41 from 44.2 previously.
Sekele said at 41, the index was now hovering around the weakest level since the end of 2021.
“This does not bode well for a recovery in actual formal employment in the manufacturing sector during the second half of the year,” he said.
This is after the sector lost jobs on a quarter-on-quarter basis in the second quarter.
The supplier deliveries index remained elevated for the fourth month in a row in October. This index is inverted in the headline PMI index calculation, implying that longer supplier delivery times boost the headline PMI.
Sekele said the reasoning behind this was that pre-Covid-19, longer delivery times were mostly associated with robust demand conditions.
“It was seen as reflecting manufacturing sector strength. However, as was the case during the worst of the pandemic, supply disruptions can also lengthen delivery times without any rise in demand,” he said.
“Given the weak PMI demand indicators in recent months, the fact that the supplier delivery index remained high suggests some lingering supply-side issues following disruptions in July, which saw trucks torched on the N3, as well as the August Western Cape taxi strike and September’s Western Cape floods.”
This is reflected in the index, which went up by half a percentage point from 60.5 in September to 61 in October.
There was better news on the price front in October as the PMI purchasing price index eased to 62.9 in October.
Sekele said the decline in domestic fuel costs in early November, petrol down by almost R1.80/l and diesel falling by 85c/l would help. He said this should provide further near-term input cost relief to manufacturers.
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