SA manufacturing starts 2017 off on solid footing

Cape Town - The Absa Purchasing Managers' Index has edged above 50 for the first time since July 2016, suggesting the manufacturing sector started the year on a relatively solid footing.

The PMI, compiled by the Bureau for Economic Research (BER) and sponsored by Absa, rose to 50.9 in January 2017, up from 46.7 in December 2016. A value of 50 indicates no change in the activity, a value above 50 indicates increased activity and a value below 50 indicates decreased activity.
 
"The rise in the headline PMI was supported by four of the five underlying subcomponents increasing in January compared to December 2016," the BER said on Wednesday.

The new sales orders index managed to remain above the neutral 50-point mark for a third straight month, although the index declined to 50.4 from 50.9 points.

According to the report "the sustained uptick in orders filtered through to higher output levels. As such, the business activity index rose to 52.7 – the best level since June 2016".

READ: Manufacturing in SA: Do you want the good news or the bad news? 

The employment index also improved, but remained below the neutral 50-point mark for a fifth month.

The index measuring suppliers’ performance recovered to 53 points in January from a historic low of 40.9 in December.
 
After remaining unchanged in December at 65.6, the purchasing price index rose to 72.4 index points in January. According to the report, this was likely due to the fuel price hike at the start of the year, with a further hike effective from Wednesday 1 February. Despite the 6.8-point increase in January, the index is still 13.6 points below the level recorded this time last year.
 
The index measuring expected business conditions in six months’ time surged to 70.3 – the best level since early 2010 – from 53.2 points in December.

"It was somewhat surprising that respondents were so upbeat about business conditions going forward. Manufacturers targeting the export market may expect to benefit from an uptick in global demand, as reflected by the sustained high levels of PMI readings in the US, Europe and to a lesser extent China," according to the report.

"Domestically, demand from the recovering agriculture sector may improve through 2017, although consumer spending is likely to remain under pressure. The PMI leading indicator dipped just below 1 in January as the inventories index came in slightly above the new sales orders. This means that the business activity index may fall back somewhat." 

In reaction to the latest PMI, Sanisha Packirisamy, economist at MMI Investments and Savings, said she expects a measured improvement in the manufacturing sector following a poor outcome over the fourth quarter of 2016.

In her view manufacturers are likely to remain cautious in their hiring intentions and capital investment plans. Year-on-year growth in real fixed investment in the manufacturing sector has averaged negative 4% over the past four quarters.

"In our view, manufacturers are likely to wait for a sustained improvement in demand conditions before expanding their labour force and investing in additional capacity," said Packirisamy. 

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