Uptick in domestic demand, exports support manufacturing activity - index

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The Purchasing Managers' Index for February icnreased to 53 points.
The Purchasing Managers' Index for February icnreased to 53 points.
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  • The was an improvement in economic activity in the manufacturing sector during February.
  • Notably there was an uptick in domestic demand and exports which helped lift sales orders.
  • The employment component and the supplier deliveries component of the index however declined.

There have been improvements in domestic demand with the easing of lockdown restrictions, which has helped to bolster economic activity in the manufacturing sector, according to the ABSA Purchasing Managers' Index (PMI).

The PMI for February, released on Monday, measures economic activity in the manufacturing sector. It improved from 50.9 points record in January to 53 points. The index reading is also higher than the market consensus of 51, which was expected. A reading above 50 indicates there is increased activity, while a reading below 50 indicates a decrease.

Only two of the five components ticked downwards –  the supplier deliveries index which moved down from 68.9 points to 61.7 points and the employment index which moved down from 48.6 points to 44.1 points.

"In Q4, the factory sector managed to add 28 000 formal jobs on a quarterly basis, although employment was still down by a sizeable 171 000 jobs from a year before."

Notably new sales orders increased during the month. The component's reading increased from 47.2 points in January to 54 points in February. It is also the best level recorded since October 2020, according to the report.

"The improvement was supported by better export sales relative to the previous month, while the loosening of local lockdown restrictions likely also contributed to an uptick in domestic demand," the report read.

The improvement in orders had a positive impact on the business activity component, which lifted from 43.5 points in January to 52.1 points in February.

"The increase suggests that production growth reaccelerated after losing steam towards the end of last year," the report read.

The inventories component recovered from January's lows, climbing back from 46.1 to 53.3 points.

According to the report, purchasing managers remain "relatively optimistic" about the six-month outlook. The expectations component remained unchanged at 59.2 points.

"A factor which may quell sentiment going forward could be continued upward pressure on costs. This, especially if the demand environment remains relatively weak and producers cannot pass on these costs to mitigate some pressure on profitability," the report read.

The report noted that the purchasing price index rose further in February – due to a hike in fuel prices.

"Fuel prices are expected to rise further in coming months on the back of a higher Brent crude oil price as well as an increase in fuel levies. A sharp hike in electricity tariffs will also push up costs," the report read.

Last week the Automobile Association warned that the price of petrol could increase by 66 cents per litre and diesel by 57 cents per litre due to the higher brent crude oil price.

Fuel levies are set to increase by 27c/l from April, Fin24 previously reported.

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