July PMI shows output, orders falling faster

South Africa’s purchasing managers index (PMI) fell in July, after rising for two months, as manufacturing output and new orders declined more sharply.

Kagiso Securities, which sponsors the survey, said on Monday the PMI for July fell to 37,3 on a seasonally adjusted basis from 37,9 in June, moving further below the 50 divide between growth and contraction.

The PMI has shown the sector shrinking for more than a year under pressure from a global economic slowdown and depressed domestic demand.

Kagiso said after moderating in the last few months, the fall in output speeded up again as the seasonally adjusted business activity and new sales orders indices dropped.

“This is the worst of the bad news,” said Andre Coetzee, head of fixed income and currency futures at Kagiso Securities, in a statement.

The business activity index fell to 33,8 from 37,9, while news sales orders dropped to 35,8 from 38,2—in contrast with European PMIs on Monday, which showed new euro zone manufacturing orders close to the stabilisation level and new British manufacturing orders growing quite strongly.

“The persistent weak readings and the associated contraction in manufacturing output are disappointing, especially since the global PMI has already reached levels above 45 index points,” said Coetzee.

The seasonally adjusted employment index rose to 40,8 from 36,9, showing a still sharp pace of lay-offs but raising hopes that the worst of the job cuts in the manufacturing sector were over for 2009.

The PMI hit a record low in April, before marginal rises in May and June.

He added, however, that South Africa lagged the global manufacturing and business cycle and the local PMI could see an accelerated gain in the months to come.

For the fifth month in a row purchasing managers were hopeful for a better second half of 2009, with the expected business conditions index increasing to 55,1 from 52,8 previously.

The South African Reserve Bank has since December cut the repo rate by 450 basis points to 7,5% to help stimulate an economy that is in its first recession in almost two decades.

The manufacturing sector shrank by a record 22,1% in the first quarter and is expected to remain weak. - Reuters

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