JOHANNESBURG, 1 DECEMBER 2017 – The Steel and Engineering Industries of Southern Africa (SEIFSA) welcomes the latest preliminary data released by the Absa Purchasing Managers’ Index (PMI), which indicates an improvement in overall business activity in the manufacturing sector.
The PMI data released today improved from 47.8 percent in October 2017 to 48.6 percent in November 2017.
SEIFSA Chief Economist Michael Ade said although the index still trended below the neutral level of 50 for the sixth consecutive month, it has now improved consistently for four successive months from August 2017 to November 2017. He said this was good news for the metals and engineering (M&E) sector since the index, which is a lead indicator, provides an insight into how producers and relevant stakeholders in the manufacturing sector view the month.
He added that, to a large extent the improved performance of the PMI index was expected, given the improving global demand conditions and the improving balance of trade data.
“Moreover, the improvement of the monthly Producer Price Index (PPI) released by Statistics South Africa yesterday for both the final and intermediate manufactured goods from September 2017 to October 2017, by 0.7% and 1.3% respectively, gave credence to positive expectations.
“The PPI for intermediate manufactured goods is the best measure of selling price inflation for the M&E sector. Its improvement underscores the sector’s ability to increase its selling prices, thereby presenting an opportunity for producers to bolster margins and to improve the bottom line,” Dr Ade said.
He said that the momentum gained from improved selling prices was expected to spill over to the PMI data for the new month.
“This would then have a positive domino effect on the various sub-indices of the PMI, with the effects more pronounced on the business activity sub-index, the inventory levels sub-index and the new orders sub-index,” said Dr Ade.
Today’s PMI index release recorded for the various sub-indices from October 2017 to November 2017 showed that:
- the business activity sub-index improved from 45.9 percent to 48.0 percent, with the latter data being the highest recorded increase since May 2017;
- the inventory levels sub-index slowed from 48.3 percent to 43.2 percent;
- the employment sub-index dipped from 45.6 percent to 45.0 percent;
- the supplier delivery or performance sub-index improved from 52.3 percent to 57.4 percent; and
- the new orders sub-index fell slightly back from 49.9 percent to 49.1 percent.
Dr Ade said that, notwithstanding the volatility of the overall year-to-date PMI data, largely driven by political uncertainty and lack of clear macro-economic policy stance, it seems that it is now business as usual in the manufacturing sector in general and in the M&E sector in particular.
“Instead of the usual wait-and-see attitude earlier adopted by the relevant stakeholders that had been holding back production during the first half of the year, there seems to have been an increase in the momentum from the second half of the year going into the festive season,” he said.
“This augurs well, specifically for the M&E sub-sector and generally for the manufacturing sector, which are key building blocks in improving the contribution made by industrial production towards economic growth. Strategically, the expansion of industrial production is a necessity and a sine qua non for employment creation, redistribution of income and wealth and radical economic transformation, given the existence of labour intensive sub-components in the industrial sector,” concluded Chief Economist Dr Ade.
Marketing, Sales and Communications Executive
Tel: (011) 298 9411 and 082 602 1725