Business

Manufacturing sector contracts for fifth month in a row

Lisa Steyn

New data has shown that the manufacturing sector has contracted for the fifth month in a row, while new vehicle sales came under pressure yet again.

New data has shown that the manufacturing sector has contracted for the fifth month in a row, while new vehicle sales came under pressure yet again. (AFP)

The Kagiso Purchasing Manager’s Index (PMI), released by the Bureau of Economic Research on Monday showed the index rose to 49 points in August, up from 45.9 in July.

Although the index points came in higher than what was widely expected, an index result of below 50 indicates contraction in the sector while a number above indicates expansion. And August’s PMI marks the fifth month the sector has contracted.

Director and chief economist at Econometrix, Dr Azar Jammine, said the figures were slightly better that expected. “It shows the economy is not collapsing but it is not particularly strong.”

“The manufacturing sector is under pressure and declining,” said Jammine. “It’s in total contrast to what government is trying to achieve and it shows the current policy not working and not addressing underlying problems in the sector.”

These include growing input costs, industrial action and high wages and low competitiveness.

The BER data showed the industry experienced six consecutive months of contraction in 2012 stretching in January 2013. And from March 2007 to November 2009 – the sector did not expand for 19 months in a row.

Decline in new vehicle sales
New vehicle sales shrank 3.25% in August according to the National Association of Automobile Manufacturers of South Africa’s (Naamsa) sales statistics released on Monday. And when compared to the same period a year ago, new vehicle sales had shrunk 1.4%.

However, Naamsa described the 1.4% as a “modest decline” noting the “domestic new vehicle sales had continued to show resilience, for the third month in a row, despite subdued economic growth and pressure on consumers’ disposable income”. Meanwhile August, 2014 export sales a gain of 18.5% compared to the number of vehicles exported in August last year. 

Overall, out of the total reported Industry sales of 55 722 vehicles, 79.8% represented dealer sales, 13.1% represented sales to the vehicle rental Industry, 3.6% to Industry corporate fleets and 3.5% to government, the association said. “Assisted by another strong contribution by the car rental industry, the new car market during August, 2014 had performed relatively well…”

Slight improvements
Naamsa said domestic sales of new light commercial vehicles, bakkies and mini buses reflected an improvement of 2.1% compared to the number of commercial vehicles sold during the corresponding month last year. 

While sales of vehicles in the medium and heavy truck segments of the Industry reflected a mixed picture with medium commercial vehicle sales showing a slight decline of 3.5% while heavy trucks and buses had registered a marginal improvement of 0.1%. 

Overall, continued strength in commercial vehicle sales was encouraging and suggested improved investment sentiment. 

Industry new vehicle exports during August 2014 at 25 027 vehicles had registered a substantial improvement of 3 911 units or a gain of 18.5% compared to the 21 116 vehicles exported in August last year. 

Outlook remains challenging
“The outlook for the local automotive sector for the balance of 2014 would remain challenging,” Naamsa said. “Relatively low economic growth, recent increases in interest rates and above inflation new vehicle price increases – would combine to dampen new vehicle sales momentum. The domestic market was expected to register a decline, in volume terms, of between 4% and 5% compared to 2013.”

But weak economic data is to be expected. Last week Gross Domestic Product for the second quarter of the year expanded by 0.6%, narrowly missing a recession given that it had contracted in the first quarter.

“So far there are also no compelling signs of any significant improvement in household finances and confidence,” Nedbank Capital said in its ‘Monthly Insights’ report released on Monday. “Car sales fell further in July, although the rate of decline moderated. Patchy performances over July and August suggest that if 2014 is to be salvaged it will have to be from September onwards.”

Some recovery is still possible, the report said. “Assuming no further strikes or electricity outages, exports should recuperate off a low base helped by a stronger world economy and consumer spending should also improve modestly as income trends at least stabilise and confidence slowly returns. Nonetheless much of the damage has already been done.”

As a result Nedbank Capital, along with a number of other economists have revised its growth forecast for 2014 as a whole down to 1.5%. It was forecast at 1.8% previously.


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