SA manufacturing growth stronger than expected - but some concern about third wave

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May's PMI increased to 57.8 points, above market consensus expectations of 55.5 points.
May's PMI increased to 57.8 points, above market consensus expectations of 55.5 points.
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  • The Absa Purchasing Manager's Index for May picked up to 57.8 points, from 56.2 points recorded in April.
  • Indicators show the manufacturing sector is on track to report expansion for the second quarter.
  • Purchasing manager's however are less optimistic about the future business environment, which could be impacted by the third Covid-19 wave and load shedding.

The manufacturing sector is on track to expand for the second quarter, the Absa Purchasing Manager's Index (PMI) showed.

May's PMI, a measure of economic activity in the manufacturing sector, was released on Tuesday. The index picked up to 57.8 points, from 56.2 points recorded in April. A figure above 50 signals an improvement while that below 50 signals a deterioration. May's number beat the market consensus expectation, which was for a further decline from April's figure to 55.5 points.

The PMI in April had declined slightly from March's 57.4 points, which followed three months of improvement, Fin24 previously reported

The average PMI recorded for the first two months of the second quarter (57 points) was above the average recorded for the first quarter, the report found. This "suggests that the sector is on track to record another quarterly expansion. A significant annual expansion is effectively guaranteed given the extremely low base set in the second quarter of 2020."

For May, new sales orders lifted slightly from 58.7 points to 60.5 points, this despite a dip in export sales. According to the report, domestic demand likely drove improvement for this sub-index. As a result business activity was bolstered, with the sub-index climbing eight points from 50.8 recorded in April.

Employment dipped below the 50-neutral mark to 49.6 points, from 54.4 points recorded in April. "Despite the decline, the index remains relatively high compared to its history," the report read.

The purchasing price index is still high at 87.1 points - a sign of the high input costs related to raw materials. "Higher electricity and fuel prices, with another diesel price hike from tomorrow, add to the upward pressure to costs," the report read.

Notably, respondents are less optimistic about the future trading environment. The sub-index tracking expected business conditions in six months' dropped from 67.9 in April to 63.5 points in May.

"This could be as a result of concerns over a Covid-19 third wave. Even though government has to date adopted a softer touch to lockdown restrictions, a renewed virus-induced change in spending behaviour by consumers and firms could still hinder domestic demand," the report read. Disruptive load shedding also remains a concern.

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