Experts often say that recessions start and end in the manufacturing industries. And after months of disappointing data, the sector has finally shown signs of positive growth.
Kagiso purchasing manager’s index (PMI), which is relied on to determine the health of the sector, rebounded strongly from a weak level in December and rose 3.8 points to 53.2 during January — the highest level since June 2011 and above the 2011 average of 52.1.
Andre Coetzee, the managing director of the Chartered Institute of Purchasing and Supply (CIPS), said the PMI is the earliest indication of what is happening in the manufacturing sector, although he cautioned another two or three months would be needed before proclaiming an upward trend. “There was a big dip in July because of strike action. We are still clawing back all the ground we lost then.”
Kevin Lings, chief economist at Stanlib, agreed: “Given the volatility of the manufacturing data more than one month’s improvement in the index is required in order to raise expectations.”
The primary reason for the latest, notable figures was that the, seasonally adjusted, new sales orders index surged by nine index points to a seven-month peak of 57.3 index points. These figures, Coetzee said, point to a high demand for locally manufactured products in the underlying economy.
And the latest vehicle sales figures also show impressive performance.
On Thursday, the National Association of Automobile Manufacturers of South Africa (Naamsa) released data showing new car and commercial vehicle sales had started the year on a high with aggregate Industry sales growing by 7% year-on-year from 45 107 vehicles to 48 251.
“The January 2012 new car market represented the highest January month in the past five years and had received support from strong demand by car rental companies, with the car rental industry accounting for about 17% of total new car sales,” the report said.
Wessel Steffens, head of sales at Absa vehicle and asset finance, said passenger vehicles (particularly affordable low entry vehicles) and medium or large commercial vehicles, which were the main drivers of sales growth in the industry in 2011 are likely to continue the trend in 2012.
He said given that many consumers are still highly indebted and finding it difficult to obtain credit for higher priced vehicles, demand for good quality used vehicles remain an important factor in the industry.
Steffens said there was growth in the application count in January although the approval rates remained stable. The ratio of used to new vehicles financed remained on average 1.7 used to 1 new. “Given the current car market conditions and the narrow gap between new and used vehicles prices, we still expect the ratio to remain around this range in the short term,” he said.
Exports of South African produced motor vehicles rose 2.6% year on year in January 2012 (excluding Mercedes Benz South Africa for this month as export data was not available). Naamsa said the figure reflected that automotive factories only resumed operations from the middle of January and export sales were expected to improve from February onwards.
But Steffens said that “following the economic challenges facing most of the European nations, it is likely that exports of vehicles from South Africa may be negatively impacted with diminishing orders”.
Regardless of this, Absa Capital’s economics desk projected 5% growth for new vehicle sales in 2012, while the association said the outlook for industry sales remained one of modest growth.