The seasonally adjusted Absa Purchasing Managers Index (PMI) declined to 44.9 points in December 2017 from 48.6 in November. The drop came after four consecutive months of improvements. The deterioration was broad based with all five subcomponents of the headline index falling compared to November’s level. The dismal PMI reading suggests that the South African manufacturing sector ended the year on the back foot. This is in sharp contrast to the global performance, with the J.P. Morgan global manufacturing PMI reaching a near seven-year high of 54.5 points in December.

Of the major subcomponents, the seasonally adjusted business activity index recorded the biggest fall. The index declined from 48 in November to 42.7 in December. The new sales orders index shed 4.1 points to reach 45 in December.

The declines in these indices were disappointing after both indices (and as such the headline PMI) trended up nicely over the past few months. However, on a positive note, respondents were significantly more upbeat about conditions going forward than they were during the second half of 2017. The index tracking expected business conditions in six months’ time rose to 61.9 from 50 in November. This suggests that, in the absence of any adverse shocks, the sector could perform better through 2018.

The purchasing price index fell to 75.3 in December from 80.7 in November. The decline was despite a fuel price hike at the start of December. However, the significantly stronger rand exchange rate during the month outweighed the uptick in Brent crude prices, resulting in a fuel price decline at the start of January. In addition, the stronger rand also benefitted importers of raw materials and intermediate products.