Speaking after the release of the PMI figures today, Steel and Engineering Industries Federation of Southern Africa Chief Economist Henk Langenhoven said the latest figures gave more certainty that manufacturing production levels would begin improving in the near future. The seasonally adjusted index improved 3,5% when September is compared with August.
The business activity sub-index of the PMI improved by a further 12% in September, on the back of 20% in August on the preceding month. Mr Langenhoven said that this was of great interest to the metals and engineering sector, as it led production trends by between a year and 18 months:
- The lower business activity index turning point in the middle of 2007 resulted in a production turnaround point at the beginning of 2009;
- The peak at the beginning of 2011 caused a peak in production in the middle of 2013, and the contraction is still continuing;
- The latest business activity index numbers show a turning point in the middle of 2014, indicating a production turning point towards the second half of 2015 (accepting the same time lags).
“Confidence levels are highly volatile and very fragile. However, the monthly improvement was 12% on August. Compared to August 2013, the improvement was just over 10%,” Mr Langenhoven said.
He said that the explanation was twofold.
“Firstly, confidence is improving and expected business conditions are 6% higher and, secondly, the protracted declines in the trend since the end of 2012 caused a base effect. This means that we are comparing today with very low levels before. The signals coming from the new orders, inventories and purchasing commitments all show how fragile the situation is still,” said Mr Langenhoven.
Longer-term comparisons confirmed the latter. Looking at the nine months of 2014 relative to last year, the index was still nearly 10% lower. Comparing the 12 months ending in September against the same period last year, it is 4% lower. However, both numbers show that the contraction is slowly arrested, which is the first sign of improvement to follow and is, therefore, very encouraging.
“The signs of recovery are clearly stronger, both for the manufacturing sector generally and the metals and engineering industries specifically,” Mr Langenhoven concluded.