The seasonally adjusted Absa Purchasing Managers’ Index (PMI) improved to 44 index points in August, after slumping to its lowest level since 2009 in the previous month (42.9 points). The improvement was broad based, with four of the five major subcomponents increasing in August. However, despite ticking higher, the key sub-indices remained below the neutral 50-point mark. This suggests that the manufacturing sector is still under significant pressure and does not bode well for manufacturing output (and overall GDP) in the third quarter of 2017.

After two months of steep declines, the business activity index edged up to 41.3 index points from 39.3 in July. The new sales orders index also managed to improve. However, at just 40.1 index points, the index remains indicative of very subdued demand conditions. In fact, even with the marginal improvement, the index is at a level last seen in 2009.

Furthermore, respondents turned notably more pessimistic about business conditions going forward. The index measuring expected business conditions in six months’ time declined from 51.3 to 46.6 points in August. This is the first time since February 2016 that this index slumped below the neutral 50-point mark, which signals that purchasing managers expect business conditions to worsen further through the second half of 2017.

Some of the respondents who completed the survey earlier in the month may have been concerned about the possibility of a protracted strike in the steel and engineering sector crippling output. Therefore, now that a wage agreement was reached in late August, which removes the possibility of a strike, sentiment may turn slightly more positive. Nonetheless, if the weak demand and production environment persists, a sustained improvement remains unlikely.

Another factor that may have soured purchasing managers’ expectations about the trading environment going forward is renewed cost pressure. After remaining unchanged at 61.3 points in July, the purchasing price index rose to 67.2 in August. With a hefty fuel price hike on the cards next week, costs could tick up further in coming months.