South African manufacturing activity fell in April on slower growth in new-sales orders and output, while price pressures accelerated, the Purchasing Managers Index (PMI) showed on Wednesday.
The PMI index fell to 57,9 on a seasonally adjusted basis after increasing to 60,5 in March, Investec, which sponsors the index, said in a statement. Any number above 50 means expansion, any below contraction.
”The main contributor to the decline in the overall Investec PMI was slower growth in new-sales orders,” Vivienne Taberer, portfolio manager at Investec Asset Management, said in a statement.
The strengthening of the rand currency during April may have increased import competition in the sector, hurting domestic producers, she added.
The rand firmed by about 2,5% against the dollar during the month to end April at 7,08 after sliding on a global-markets drop in March.
The PMI drop points to slower expansion for a sector that has been growing strongly over the past year, with higher interest rates likely to begin to bite into robust domestic demand in the months ahead.
A cumulative two-percentage point rise in the central bank’s repo rate to 9% in the second half of 2006 has, until now, not had a big impact on consumer spending.
South Africa’s manufacturing sector — the second largest, accounting for almost 17% of the economy — has been growing solidly, boosted by strong domestic demand.
It expanded by an annualised 8,3% in the fourth quarter of 2006, and by an unadjusted 7,1% year-on-year in February.
Fewer jobs
The central bank left interest rates unchanged at its February and April meeting but warned that consumer spending remained high, although there were some tentative signs of it slacking off.
Investec said the new-sales orders index declined to 58,3 index points in April — still significantly above the 50 mark that signals expansion — from 64,2, while the business activity index fell to 60,8 from 64,1.
The sector was still creating jobs but at a slower pace. The employment index declined to 54,4 from its historical high of 58,7 in March.
Manufacturing is seen as one of the most crucial sectors to help create jobs and slash stubbornly high unemployment, officially estimated at 25,5%.
Price pressures accelerated during April, Investec said, backing recent data that shows inflation quickening toward the upper end of the central bank’s 3% to 6% target range.
”The month saw continued upward pressure on commodity prices, including the international oil price. High fuel prices may have a negative effect on other input costs,” Taberer said.
The PMI prices index increased to 80,2 from 76,2 in March.
Official data showed the targeted CPIX inflation gauge jumped to 5,5% year-on-year in March from 4,9% previously, while annual factory gate inflation soared to a four-year record of 10,3%.
”In all, the results portray less favourable conditions within the sector. Given the level of the exchange rate and continued pressure on input prices, these conditions may persist over the short term,” Taberer said. — Reuters