09 May 2022

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) fell sharply to 50.7 index points in April 2022. This is the lowest level of the PMI since July 2021 when unprecedented looting and rioting shook local production and demand. As was the case then, the decline in the headline PMI was due to a sharp drop in the business activity and new sales orders indices, this time amid devastating flooding in parts of KwaZulu-Natal (KZN). This led to facilities in several manufacturing sub-sectors being forced to temporarily halt production to assess damage and address transport issues of staff. Even factories not directly affected by the flooding may have seen a drop in demand. In addition to the shock to domestic business conditions, respondents also noted a sharp drop in export sales. It remains to be seen whether the drop in exports was due to the temporary Durban harbour closure and other logistical constraints related to the floods, or whether this is due to a deterioration in external demand. While normal harbour operations resumed after a few days, export deliveries will remain strained for some time due to significant backlogs and limited availability of vessel space.

Delving into the PMI subindices, the business activity index plunged to 39.6 index points in April. This suggests a sharp monthly contraction in manufacturing output at the start of the second quarter. Even businesses not affected by the flooding, either directly or indirectly, had to grapple with stage four load-shedding during the month. The new sales orders index was another big drag on the PMI, with the index falling deep into negative terrain. Both business activity and new sales orders fell to the lowest level since the looting shock in July 2021.

The headline PMI was prevented from falling into negative terrain (i.e., below the neutral-50 mark) by the inventories and supplier deliveries indices holding up in April, although both declined relative to March. Given the deterioration in business conditions, a surprising result was that the employment index was the only major subindex which improved in April. The index edged back above the neutral 50-point mark to 51.5 points. This suggests that respondents already looked past the disruptions in April. Indeed, the index tracking expectations of business conditions in six months’ time held up well. The index even improved slightly, to 55.7 index points.

There was some relief on the cost front: the purchasing price index declined after reaching a record-high level in the previous month. The rand exchange rate was, on average, unchanged compared to the previous month, but the Brent crude price came down slightly, which may cap the magnitude or limit further increases in petrochemical prices.