The seasonally adjusted Absa Purchasing Managers’ Index (PMI) recovered most of April’s sharp losses in May 2017. The index rose back to 51.5 index points in May after slumping to 44.7 in April. The April survey was the first data point available after the controversial cabinet reshuffle late March and subsequent credit rating downgrades in April. These developments dominated news headlines and likely influenced participant responses of the April survey.

The rebound in May suggests that, as expected, April’s deterioration was driven by a souring of sentiment, rather than significant month-on-month movements in demand and activity. The current level of 51.5 is likely a better reflection of conditions on the factory floor than the dismal 44.7 recorded in April. Nonetheless, without any official manufacturing data for the second quarter available as yet, and elevated volatility in the recent PMI data, it is too early to call whether the sector performed better in the second quarter compared to the first.

The new sales orders index rose to 54.1 in May. This was not only sharply better than the dismal 44.4 recorded in April, but also above the first-quarter average of 52.9. The improvement in demand helped lift the business activity index back above the neutral 50-point mark to a solid 52.3 points in May. In contrast to the improvement in demand and activity, the employment index declined in May. The index fell from 50.3 points in April to 47.4 in May.

Going forward, purchasing managers were also more upbeat about expected business conditions in six months’ time. The index measuring this rose to 61.4 points, up from 55.8 in April. While the improvement is encouraging, the index remains well below levels seen in the first quarter of 2017. The PMI leading indicator came in above 1, due to new sales orders outstripping inventory levels. 

This suggests that output could continue to improve in the next few months. Another factor that could be positive for the sector is the slight slowdown in upward cost pressures. The purchasing price index declined slightly in May on the back of a stronger rand exchange rate and lower Brent crude oil price.