Johannesburg, 3 September 2018 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) is concerned about the significant decline in the Purchasing Managers Index (PMI) released by Absa today, Economist Marique Kruger said today.
The seasonally-adjusted PMI declined from an encouraging 51,5 points recorded in July to 43,4 points in August 2018. This is the lowest level over 18 months, with a similarly low value of 43, 3 points recorded in July 2017.
“Despite a brief rebound in July 2018, there was a significant dip in the data, reflecting the inability of purchasing executives to sustain momentum in business activity in the broader manufacturing sector. Unfortunately, the datapoint places the headline PMI below the 50-neutral level which separates expansion from contraction,” Ms Kruger said.
Ms Kruger said that the deterioration was underpinned by sharp declines in the new sales orders, the business activity and employment sub-indices, with inventory levels and supplier delivery perching above the neutral 50-point mark in August. She said the performance of the inventory levels and supplier delivery sub-indices provided some stability to the headline PMI, preventing a much worse posting.
“Worryingly, three of the five sub-indices declined between July 2018 and August 2018, with only two sub-indices comfortably trending above the neutral level. The best performer was the supplier delivery sub-index staying above the 50-point mark at 53,2 in August 2018 from 54,0 in July 2018, while the worst performer was the business activity sub-index at 37,2 points.”
Moreover, Ms Kruger said that increasing fuel prices add to rising pressure on business input costs in the metals and engineering (M&E) cluster and the broader manufacturing sector.
“Furthermore, businesses are constrained from being able to take advantage of the weaker exchange rate, thereby paying more for imported inputs. The double whammy of rising fuel prices and input costs has the potential to impact negatively on both production and exports volumes,” she said.
However, Ms Kruger said that SEIFSA remained hopeful that businesses in the M&E sector will take advantage of a slowly firming business sentiment, which is underpinned by improving political will, to continue boosting output levels and stay resilient.