Manufacturer confidence down, but still above 2019 and 2020 levels – survey

Manufacturer confidence decreased due to the impact of the unrest in July and lockdown restrictions, but is still above 2019 and 2020 levels, according to the Q3 Absa Manufacturing Survey.

However, these shocks were relatively short-lived and August should see some rebound in output.

This is supported by the Absa Manufacturing PMI, which surged from 43.5 in July to 57.9 in August from 43.5 in July, as well as indications from the manufacturing survey.

The Bureau for Economic Research (BER) at Stellenbosch University conducted the quarterly survey, which covers about 700 businesspeople in the manufacturing sector, between 11 and 30 August 2021.

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Manufacturer confidence decreased

The survey showed a slight dip in overall sector confidence, with business confidence falling five points to 41 during the third quarter. Although the fall is disappointing, the current level remains well above those experienced during 2019 and 2020 and in line with the long-term average.

“With continued uncertainty regarding Covid-19 lockdown restrictions during the third quarter, as well as the unrest in KwaZulu-Natal and Gauteng, the drop in confidence is not too surprising,” says Justin Schmidt, head of the manufacturing sector at Absa Retail and Business Bank.

With a confidence index that ranges between zero and 100, with zero an extreme lack of confidence and 100 extreme confidence, the third quarter survey data regarding inventories is more positive than previous quarters.

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Improvement

Schmidt says although supply chain disruptions remain a concern, manufacturers noted an improvement in their raw material stock relative to their planned production and their finished goods stock relative to expected demand.

“As manufacturers head into their peak sale season, they will increase their investment in inventory. A sizeable majority of manufacturers expect an increase in inventory investment in the next 12 months, which is a good lead indicator for future growth.”

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Margin pressure still on

Unfortunately, margin pressure is still a concern as the total cost realised per production unit increased by 10 points to 71 during the quarter, the highest it has been since Q4 2018. Respondents attributed this to:

• increased raw material costs
• high plastic, steel and packaging costs
• rising electricity tariffs
• elevated transport costs.

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Manufacturers optimistic

The survey also indicated that the majority of manufacturers are optimistic regarding overall business conditions in the coming months, with an expected recovery in demand and production on the cards following the shocks in the third quarter.