Purchasing managers' index drops

The seasonally adjusted Kagiso purchasing managers’ index (PMI) dropped to 49.4 in December from 51.6 in November. This was the first move below the breakeven 50 level since August 2011.

Abdul Davids, the head of research at Kagiso Asset Management, said: “The December pullback followed three consecutive months [September to November 2011] of [marginally] above 50 readings.”

Davids added that “the seasonally adjusted business activity index declined by 2.6 points to 49.7, signalling weaker factory output in the final month of the year”.

The seasonally adjusted new sales orders index fell to 48.3 in December from 51.2 in November. The PMI input cost indicator remained elevated with the price index gaining 1.2 points to reach 83.3, the highest level since March 2011.

The inventory index declined by 3.5 index points to 50.9, while purchasing commitments retreated by a sizeable 7.5 index points to 45.6.
Davids said that “the December level was the lowest since August 2011 and may suggest that purchasing managers are not confident of a quick, or robust, return in the demand for factory goods”.

The expected business conditions index rose by 6.3 points to 61.3. Davids observed that “whilst the increase in the expected business conditions index was encouraging and suggests better times ahead, it was not corroborated by the PMI leading indicator that remained below 1”.

Last week Statistics South Africa reported that manufacturing production in South Africa bounced by 2.9% in November from October but still remained below its September level.

The 2.6% year-on-year increase in November was better than the upwardly revised October rise of 1.2% (previously 1.0%), but still down significantly on the 8.2% year-on-year jump in September. One of the reasons for the high September was due to base effects as September 2010 was impacted by industrial action in the motor division.

Barclays Capital said in its reaction to the data that seven of the 10 manufacturing sub-divisions in November tracked by Stats SA were in positive growth territory, while the remaining three (textiles, clothing and footwear; motor vehicles, parts and accessories; and furniture and other manufacturing divisions) remained in negative territory.

Momentum growth in production on a quarterly seasonally adjusted and annualised growth basis has remained positive at 8.1%. Barclays cautioned, however, that monthly growth will have needed to sustain in December in order for South Africa’s manufacturing sector to be able to contribute meaningfully to the fourth quarter 2011 gross domestic product (GDP) growth after two consecutive quarters of contraction.—I-Net Bridge

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