The seasonally adjusted Absa Purchasing Managers’ Index (PMI) rose to 49.9 index points in January. This is the best reading since May 2017 and the 5-point rise more than makes up for the 3.7-point slump experienced in December. The January PMI suggests that the local manufacturing sector started the year on relatively solid ground compared to recent readings.

The improvement was broad based with all five major subcomponents increasing compared to December. The business activity index recorded the biggest increase and rose by almost 10 points in January. This was supported by an improvement in demand as reflected by the rise in the new sales orders index. Both indices managed to edge back above the neutral 50-point mark for the first time since May 2017.

Encouragingly, the index tracking expected business conditions in six months’ time recorded another sharp increase. The index rose by 10.9 points to 72.8 in January after an 11.9-point uptick in the month before. The increases brought the index to the highest level since early 2010. The improvement is likely due to the stronger global growth outlook as well as better prospects for the domestic economy. In addition, the fact that the new sales orders index came in above the inventories index means that the PMI’s leading indicator is above one. This usually bodes well for output growth going forward.

The purchasing price index fell for a second month in January. This points to lower cost pressures for manufacturers. The index fell to 70.4 index points and is now more than 10 points below a recent high of 80.7 reached in November. The significantly stronger rand exchange rate likely contributed to the downward move in the price index.