The seasonally adjusted Absa Purchasing Managers’ Index (PMI) erased most of last month’s gain and fell to 45.4 index points in May from 47.2 points in April. Barring a drop to 45 points in March, this is the weakest level since October 2018.

The decline brought the average PMI for the first two months of the second quarter to 46.3 points, which is below the first quarter average of 47.1 points. This does not bode well for a recovery in activity in the manufacturing sector after output declined notably on a quarter-on-quarter basis in the first quarter.

Three of the major subcomponents declined when compared with April, while the suppliers’ deliveries and employment indices rose. The index tracking suppliers’ performance remains the only main subcomponent that is above the neutral 50-point mark. Indeed, despite improving somewhat in May, the employment index stayed well below the neutral mark at 43.2 points.

The new sales orders index dipped lower in May after an encouraging improvement in April, falling to 44.4 points. The PMI indicates that export orders remained positive, which suggests that the downturn came from weaker domestic demand. The deterioration in orders most likely contributed to a sharp drop in business activity. The inventories index also weighed on the headline PMI, as the index fell further following a steep decline in April. This sub index fell to 41.6 points in May, and is currently more than 11 points below a recent high, which was reached three months earlier.

The index tracking expected business conditions in six months’ time remained unchanged at 62.3 index points. This is more than 4 points above the average recorded during 2018, which means that respondents remain fairly optimistic that conditions will improve going forward.

Somewhat surprisingly, the purchasing price index declined further in May. Whereas factory-gate price inflation, as measured by the Producer Price Index (PPI), has increased of late, the PMI price index is currently at the lowest level in a year. It is not immediately clear what is driving the difference. However, the PMI might reflect the general lack of price pressure in the South African economy as firms absorb rising input costs to protect sales volumes.