1 February 2022
The seasonally adjusted Absa Purchasing Managers’ Index (PMI) recovered from December’s loss of momentum and rose to 57.1 index points in January 2022, following a dip to 54.1 in December 2021. The current level is in line with November’s reading, but above the average recorded in the fourth quarter of 2021 and reflects a strong start to the year for the manufacturing sector.
The improvement in the headline PMI was to a large extent driven by a rebound in the business activity index, up from a low 48.7 points in December to 56.6 in January. The series is seasonally adjusted, so it should not merely be a ramp-up in production after a Christmas break that boosted output. Indeed, an improvement in the (also seasonally adjusted) new sales orders index suggests that demand looked better. In particular, respondents noted a rise in export sales, which could have boosted output. Further supporting the rise in the headline index was another increase in the inventories index. The employment index, albeit still below the neutral 50-point mark at 49.2 points, was less of a drag on the headline reading than the previous month.
Generally, the PMI and most of the subcomponents rose to November’s levels following a decline in December. The forward-looking index paints an even more optimistic picture. The index tracking expected business conditions in six months’ time rose to an almost four-year high of 71.3 points – this is more than ten points above last year’s average reading. Especially amid a likely more challenging global environment of slower real GDP growth and higher interest rates, it is difficult to pinpoint a specific reason that drove the stark improvement in January. Perhaps the rapid downtick in South African COVID cases, without the necessity of strict restrictions on activity, eased some fears that future COVID waves would directly restrict output growth. With Omicron cases also peaking, or already having peaked, in many of South Africa’s trading partners, it could also be expected that export growth improves going forward as demand from the affected services sectors normalises. If sustained, the slight easing of supply chain disruptions in recent months will also be positive for the sector. Another boost to sentiment may come from a bounce back in the local tourism industry following the unwinding of travel bans, aiding manufacturing subsectors with linkages to the hospitality industry.
After reaching an almost six-year high last month, the purchasing price index nudged only slightly lower and remained high at 88.9 points. The decline in the fuel price at the start of January might explain the slight drop in the index relative to December. If so, the increase in the fuel price, effective tomorrow, may once again put upward pressure on costs.