PMI drops as private sector stagnates in weak economy

Johannesburg - South Africa's private sector is languishing in current weak economic conditions, according to the Standard Bank Purchasing Managers' Index (PMI), released on Tuesday.

The index showed the PMI fell to 49.8 in August, from 50.1 in July, with values above 50 signalling an improvement in business conditions. This indicates a broad stagnation in overall private sector operating conditions midway through the third quarter of 2017. The economy also experienced the first drop in wages in the history of the six-year survey.

The latest figures are the second-lowest in the past 12 months and below the six-year long-run survey average of 50.7.

The PMI drop in August reflected the decline in business output as well as new business. The impact of these declines was partly offset by stronger growth of employment, lengthening supplier delivery times and higher input stocks.

'Policy uncertainty to keep PMI volatile'

Commenting on August’s survey findings, Standard Bank economist Thanda Sithole said August's PMI drop was largely driven by output and new orders sub-components.

“The PMI remained in contractionary terrain for three consecutive months, indicating a continued deterioration in domestic operating business conditions,” he said.

Private sector business activity in South Africa declined for the fifth successive month in August. The rate of contraction quickened slightly since July, and was the second-fastest registered since April 2016.

Sithole said the employment index showed a surprising uptick, despite the stubbornly high unemployment rate and looming job losses in the mining sector. The stock of purchases index also lifted to 50.6 from 50.4, reflecting inventory restocking.

“Policy uncertainty and political turmoil will keep the private sector PMI volatile in the near term,” Sithole warned. 

Lower output was linked to declining intakes of new work. New business fell for the second time in three months, and at the fastest rate since April 2016. This was despite a rise in new export sales for the first time in ten months.

Private sector employment continues to expand

But the survey also showed private sector employment in South Africa continued to expand in August. The rate of job creation strengthened to the fastest since January, and contributed to a third successive decline in outstanding business.

Purchasing operations were cut back in August as the volume of incoming new business fell. Input buying in the private sector declined for the third time in four months, albeit at a marginal rate. Stocks of purchases also expanded further, and suppliers’ delivery times lengthened.

Input price inflation in the South African private sector sharpened to a seven-month high in August.

This mainly reflected a faster rate of purchase price inflation, linked to higher steel and fuel costs, Standard Bank explained. In contrast, average staff costs fell for the first time since the survey began in July 2011.

Prices charged for goods and services rose at the fastest rate since January.

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