The seasonally adjusted Absa Purchasing Managers’ Index (PMI) ended 2018 on a positive note, reaching the best level of the year. The PMI rose from 49.5 in November to 50.7 points in December, which is just above the neutral mark and signals growth in the sector. The headline PMI was well supported by three of the five subcomponents, namely those tracking activity, demand and supplier performance. However, employment moved lower, while the inventories index edged back below the neutral 50-point mark. 

The new sales orders index rose for a second month to reach 54.3 points in December. Respondents noted a further rise in export orders, which likely supported the overall improvement in demand. A deceleration in global growth, as suggested by the recent downturn in many of the international PMI indicators, may start to weigh on export growth going forward. Nonetheless, in December, the improvement in demand helped to lift the business activity index above the 50-point mark for the first time since February. Indeed, both new sales orders and activity came in at the highest level seen through 2018. Unfortunately, despite an uptick in activity, the employment index slumped to the lowest level since 2014. 

On a positive note, for the first time since July, respondents expect business conditions to improve in six months’ time. The index tracking expectations rose for a second month to reach 51.4 in December and is now almost 10 points above a low of 41.7 reached in October. The positive sentiment is supported by the PMI’s leading indicator which rose further above one with sales orders outstripping inventories. A further decline in the purchasing price index likely also lifted spirits, as it reflects a decline in cost pressures for manufacturers. However, a possible return of electricity loadshedding from mid-January could depress the tentative signs of a recovery in the sector. Indeed, while the December survey results are encouraging, a sustained recovery in demand is required before a meaningful recovery in manufacturing output, investment and employment can take place.