Overall business activity in the manufacturing sector, as captured by the headline ABSA Purchasing Managers’ Index (PMI) for August 2020, provides some level of reassurance to companies in the Metals and Engineering (M&E) sector, Steel and Engineering Industries Federation of Southern Africa (SEIFSA) Chief Economist Michael Ade said today.
Dr Ade said the PMI’s performance in August, despite a tough domestic operating environment, provides insight to the improving perception held by company executives, as they aim to further improve on production with the easing of COVID-19 restrictions.
Dr Ade said the leading indicator, which acts as a preview to industrial activity before it happens, is slowly picking up and provides a basis for businesses to use excess capacity, boost production and increase overall contribution to economic growth. Correspondingly, the increase in the PMI is important in influencing how producers and relevant stakeholders in the broader manufacturing sector view the coming month, enabling them to confidently place orders in advance.
The latest seasonally-adjusted preliminary PMI data shows the composite PMI increasing to 57.3 points in August 2020, from 51.2 points in July 2020.
Encouragingly, all the sub-indices performed well in August when compared to July, with the new sales orders sub-index increasing from 53.4 points to 71.7 points, the employment sub-index increasing from 33.0 points to 39.0 points and the production sub-index rising from 62.9 points to 67.0 points.
“It is important for companies to build on the encouraging signs of green shoots in industrial activity to improve their chances of survival and maintain existing jobs,” said Dr Ade.
He said the uptick in industrial activity was in line with broader domestic economic activity, which is slowly picking up with the easing of lockdown restrictions, as evidenced by the latest set of business-cycle indicators from the South African Reserve Bank. However, he cautioned that it was still important for employees to remain vigilant and not drop their guard and that employers should place an emphasis on both the economy and the health of their workers since the worst of the Coronavirus pandemic is not yet over.
Dr Ade said it was crucial that industry stakeholders and policy makers jointly address the issues that may constraint short-term growth drivers, such as trade and logistical issues relating to the pandemic, in order to limit the pandemic’s effects on people and the economy.
“Trade determines the demand for a commodity and the over-arching challenge of poor demand can only be addressed through increased inter- and intra-industry trade. This implies that more attention should be directed at improving logistical constraints and boosting supplier deliveries in the M&E value chain towards improved trade. For perspective, supplier deliveries carry the highest weighted average (0.40) of all the sub- PMI indices, highlighting the importance of having a functional logistics process towards boosting supply chains activities and trade in the M&E sector,” he said.