1 July 2021

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) edged down slightly to 57.4 index points in June 2021 from 57.8 in May 2021. All 5 of the headline PMI’s major sub-components were above the neutral 50-point mark in June. Furthermore, the average reading of both the headline PMI as well as the business activity index during the second quarter was higher than recorded in the first quarter of 2021. This suggests that the sector’s output recovery was maintained in the second quarter with another quarterly expansion likely. A significant annual expansion is effectively guaranteed given the extremely low base set in the second quarter of 2020.

However, the move to adjusted alert level 4 lockdown restrictions at the end of June, especially if sustained for longer than the initial two-week period, could stall the broader economy’s quarterly growth momentum at the start of the third quarter. This could result in a possible slowdown in the demand for selected manufactured goods, and production as a result. Indeed, amid concerns about the magnitude of the third wave of COVID-19 infections and South Africa’s move from level 2 to level 3 in mid-June, purchasing managers’ assessment of expected business conditions already turned less positive in June. The index tracking expected business conditions in 6 months’ time declined for a second month to 59.3, signalling an anticipated improvement in business conditions, just less so than before. The move to level 4 is likely to have soured expectations further, specifically for those businesses with close ties to the hospitality industry. On the positive side, the outlook for manufacturers targeting the European and US export markets remains very bright, with recent international PMI readings remaining at or near record-high levels.

The June PMI results suggest that while growth in new sales orders and business activity slowed somewhat, both remained very strong. Indeed, on the demand front in particular, after dipping somewhat in May, export sales also returned to positive terrain. Overall, the business activity index dipped to 56.2 index points from 58.8 in May, while sales orders declined to 57.3 from 60.5 the month before. Another positive development was the return of the employment index to above the neutral 50-point mark. However, even if this means that job losses in the sector have now stopped, the factory sector has a long way to go to regain its pre-COVID level of employment.

The purchasing price index moved lower for a third consecutive month and is now back in line with February’s level. Another diesel price increase expected next week could put renewed pressure on costs, which remain high. In all likelihood, the decline in the index merely signals a slowdown in the pace of increases. The index declined to 83.6, down from March’s recent high of 89 points, but still about 10 points above the level recorded in June 2020.