The seasonally adjusted Absa Purchasing Managers’ Index (PMI) remained virtually unchanged at a very weak level of 43.2 points in September 2018. The latest figure dashed any hope that the sharp PMI decline in August was a once-off occurrence. The average level of the PMI in the third quarter was 46 index points, which is the lowest average since the third quarter of 2017 and 3.5 points below the average recorded in the second quarter. While high-frequency activity data from Statistics South Africa suggests that the economy will exit the technical recession in the third quarter, the PMI survey inspires little hope that the economy staged a strong recovery.
The PMI edged lower due to declines in three of the five subcomponents of the headline index. Of the key subcomponents, only the suppliers’ deliveries index came in above the neutral 50-point mark. The business activity index managed to gain 1.5 points in September, but, despite the uptick, remained well below the neutral 50-point mark. Worryingly, the new sales orders index edged even lower during September. As respondents still noted an improvement in export orders, the weakness is more than likely driven by poor domestic demand conditions, including from the South African mining and retail sectors. The employment index lost further ground in September and is now at its lowest level in more than four years.
After six consecutive declines, the index tracking expected business conditions in six months’ time moved slightly higher in September. The index rose to 45.8 in September, up from 44.6 in August. This is still a very weak level and is more than 10 points below the average recorded during the last ten years (which includes the 2008/09 recession). The PMI’s leading indicator also stayed below one, with inventories outstripping sales orders. This usually does not bode well for manufacturing output going forward.
On the back of a significantly weaker rand exchange rate and higher Brent crude oil price (compared to the previous month), the purchasing price index also increased in September. The index rose to 85.9, which is the highest level since early 2016.