Manufacturing struggles continue, but local demand shows signs of recovery

PMI in July notes that improved domestic demand supported an improvement in production. Picture: iStock South Africa’s manufacturing sector got off to a weak start in the third quarter, with the Absa Purchasing Managers’ Index (PMI) declining again in July, although improving domestic demand helped boost new orders and supported a modest recovery in factory production. The index released on Monday showed a decline from 47.3 to 46.8 over the period.

“At first glance, this suggests a weak start to the third quarter. However, the headline decline arguably overstates the weakness in underlying manufacturing conditions. Most notably, domestic demand improved and lifted new sales orders,” read the index.

The July PMI noted that improved domestic demand supported an improvement in production, with the business activity index ticking up for a second consecutive month to 48.8 points. In the PMI, a score above 50 means manufacturing activity is growing. A score below 50 means activity is shrinking.

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A score of exactly 50 means no change. The decline in supplier deliveries also weighed on the headline PMI, but this could be seen as a positive development. “Because the index is inverted (so faster deliveries mean a lower index), in the recent South African context, a decline could signal some improvement in supply chains,” the index said.

PMI stated that recent data suggest activity in the Durban port is picking up, although Cape Town harbour is still underperforming. The index noted that the decline in inventories is “more difficult to interpret”. However, it could suggest that purchasing managers remain unconvinced that stronger demand will persist. Although some firms may still be delaying purchases in anticipation of lower input costs.

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