Manufacturing consensus: PMI’s charms will keep

Despite a decrease in the latest Purchasing Managers Index figures from Kagiso, economists remain optimistic about the future of the South African manufacturing sector.

Economists predict continued buoyancy in the South African manufacturing industry in spite of a drop in the latest Kagiso Purchasing Managers Index (PMI) for March.

“It’s not as if something drastic has happened to cause immediate pessimism. It is merely a levelling out of numbers after a very good result for February,” Jana Le Roux, economist at ETM Analytics told the Mail & Guardian.

Seasonally adjusted PMI for March was recorded at 55.1, down on the 57.9 recorded in February but remaining above the key 50 index point level.

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.

A reading of below 50 points indicates a contraction in the manufacturing sector, while a reading of over 50 points to an expansion.

Decreases in the business activity and new sales orders indices within the latest PMI figures were seen to be behind the drop in the overall index.

“The numbers are still strong so we don’t necessarily want to worry too much about this minor drop in PMI,” Jeff Gable, economist at Absa Capital told the M&G.

BER also described the figures as being congruent with a “robust” increase in production within the manufacturing sector.

Gable was however weary about the possible impact of industrial action that is expected in the manufacturing and mining sector towards the middle of the year.

“Strikes will always be a factor, but if all matters are resolved timeously the sector recovery will continue,” he said.

Along with the prediction of a buoyant manufacturing sector in 2012, Le Roux also predicts continued growth in consumer spending, in spite of increased living expenses.

“Fuel and electricity prices increase will weigh down on the ability of the consumer to spend freely, but we don’t expect any major slowdown in household spend for 2012,” Le Roux said.

Le Roux’s assertions were supported by Dawie Roodt, chief economist at the Efficient Group.

“Household balance sheets are improving, debt is decreasing and this is leading the overall South African economic recovery. We might experience a few bumps in the road over the next two months as increases in expenses like electricity and fuel hit home, but this will only be temporary,” Roodt said.

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