04 October 2022

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) rose from 48.2 index points in September to 50 in October¹. This is slightly better than the average recorded during the previous quarter (49.6). However, the Transnet strike and faltering global demand likely hurt exports, while persistent load-shedding capped the recovery in activity and demand.

However, as the intensity of load-shedding was less severe compared to September, the business activity index did improve from the previous month. At 48.8 points, it still indicates weak output, but this was the best reading since March 2022. Worryingly, the employment index moved against the improvement in activity and tumbled lower in October. At 41.5 points, the index signals the fastest pace of job shedding in two years.

The new sales orders index bounced back in October but remained stuck in negative terrain for a fifth consecutive month. As was the case in September, some respondents highlighted that in addition to curtailing their production, load-shedding is also hurting demand for their products. Exports remained poor amidst the paralysing Transnet strike during the month, while global demand is faltering. The PMI readings from Europe, an important SA trading partner, point to a sharp slowdown in activity at the start of the fourth quarter. Indeed, worries about the strength of global growth going forward may help to explain the downtick in the expected business conditions index. The index tracking business conditions in six months slipped to 49.2. This is the most pessimistic purchasing managers have been about the outlook since May 2020. The persistence of load-shedding and little hope that this will be alleviated over the near term likely also weighed on sentiment.

There was some positive news as the purchasing price index moved lower for a fourth month. The index is now about 20 points below a record high reached in March this year. As foreshadowed by the PMI (which measures prices of goods coming into the factory), official data for factory-gate prices has started to trend lower. While producer price inflation (PPI) remains elevated, it seems clear that input cost pressures have peaked. That said, with a hefty fuel price hike to come into effect later this week, controlling costs remains a challenge (especially for those factories using diesel generators during times of load-shedding).  The October PMI release incorporated updated seasonal adjustment factors (as is done once a year) for all the seasonally adjusted indices. This has resulted in minor changes to the historic data for these subcomponents and the headline PMI. The revised historical data is available on the BER’s website.