Purchasing managers index rises to two-year high

The seasonally adjusted Kagiso Purchasing Managers Index (PMI) posted strong gains in February, rising by 4.7 index points to 57.9—the highest level since February 2010.

The PMI, conducted on a monthly basis by the Bureau for Economic Research (BER) and the Chartered Institute of Purchasing and Supply, is a key leading indicator for activity in the manufacturing sector.

An index level of below 50 represents contraction in the manufacturing sector, while a reading of more than 50 signifies expansion.
The index rose to 53.2 in January after declining to 49.4 in December from 51.6 in November.

Abdul Davids, the head of research at Kagiso Asset Management, commented that, “the seasonally adjusted business activity and new sales orders indices drove the robust increase in the PMI”.

These two indices have the biggest weighting in the overall PMI index.

The business activity index made the largest positive contribution, courtesy of an 11.6 point jump to a five and a half year high of 65.2.

Davids added that “not one of the 26 countries for which PMIs were published in January had a business activity reading above 65 points”.

The new sales orders index suggests robust demand for SA factory goods as the index gained 7.5 points to 64.8 index points.

Davids added: “We have seen a pick-up in manufacturing volumes in steel and petroleum products and these could have contributed to the robust showing in activity levels and new sales orders.”

The expected business conditions index posted a further marginal increase to 66.2 points, while the PMI leading indicator (new sales orders expressed as a ratio of inventories) rose from 1.07 in January to 1.26 during February.

The February PMI also brought some better news on the price front as the PMI price index declined by 5.7 points to 75.7. Even on the factory job front the situation seems to be slowly looking up as the employment index reached a 12-month peak, albeit that it remained below the all-important 50 mark.—I-Net Bridge

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