1 June 2021

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) rose to a solid 57.8 points in May 2021 from 56.2 the month before. Four of the five subcomponents remained well above the neutral 50-point mark with only the employment index dipping back into negative terrain. In all, the average level of the PMI recorded in the first two months of the second quarter of 2021 (57 points) is well above the first quarter’s average (53.8), which suggests that the sector is on track to record another quarterly expansion. A significant annual expansion is effectively guaranteed given the extremely low base set in the second quarter of 2020.

The new sales orders index regained last month’s loss and rose to 60.5 index points in May. This was despite respondents noting a dip in export sales, which means that domestic demand likely drove the improvement. On the back of higher orders, business activity increased by a robust 8 points to reach 58.8 points in May. Inventories also improved, rising to 61.4 points during the month. However, after a surprising surge in April, the employment index dipped back below the neutral 50-point mark in May.

The purchasing price index nudged down further in May 2021, albeit that 87.1 points is still an elevated level for this series (for example, last year’s average reading was 73 points). While the stronger rand exchange rate helps to alleviate some cost pressure, prices of some raw materials and intermediate goods have risen sharply during recent months. Higher electricity and fuel prices, with another diesel price hike from tomorrow, add to the upward pressure to costs. Indeed, the recent high readings of the PMI’s price index correspond to the official producer price index (PPI) data published by Stats SA, which shows a marked acceleration for not only final factory-gate inflation but also in the prices of intermediate manufactured goods.

While current business conditions improved in May, purchasing managers turned slightly less optimistic about the trading environment going forward. The index tracking expected business conditions in six months’ time dipped to 63.5 in May, down from 67.9 in April. This could be as a result of concerns over a COVID-19 third wave. Even though government has to date adopted a softer touch to lockdown restrictions, a renewed virus-induced change in spending behaviour by consumers and firms could still hinder domestic demand. The ever-present possibility of disruptive load-shedding likely also remains top of mind for many producers.