Manufacturing PMI returns to positive territory in February, but prices are a problem

South Africa’s manufacturing PMI returned to positive territory in February, increasing sharply after an extraordinarily steep drop in January, especially since there were no major events that could have caused such an outsized decline.

According to the monthly Purchasing Managers’ Index (PMI), South Africa’s seasonally adjusted PMI increased from 43.6 in January to 51.7 points in February, after falling unexpectedly at the start of the year from 50.9 in December.

The PMI is an economic activity index based on a monthly survey conducted among a representative group of purchasing managers in South Africa’s manufacturing sector by the Bureau for Economic Research (BER) and sponsored by Absa. These purchasing managers indicate each month whether a particular activity, such as new sales orders, for their companies increased, decreased or remained unchanged.

However, Jee-A van der Linde, senior economist at Oxford Economics Africa, points out that only suppliers’ performance was above the neutral 50 point mark of the five subcomponents of the PMI.

“Meanwhile, the index tracking expected conditions in six months’ time rose to 59.5, up from 58.7 in January and well above the recent low of 41 reached in November 2023.”

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Supplier index of PMI shows supply chains are doing slightly better

The supplier deliveries index increased to 62 points but remains below the recent high of 67.7 seen in December and according to Van der Linde this suggests supply chains are working slightly better relative to late 2023.

“This index is inverted and therefore a decline in supplier performance causes the index to increase. Despite remaining in negative terrain for a second month, the business activity index increased notably in February, reaching 48.6 (previously: 37.1).”

The new sales orders index increased from 37.2 to 49.9. Van der Linde says respondents were more upbeat about exports, implying some improvement to the congestion and disruptions at local ports.

However, he finds it concerning that the purchasing prices index recorded its third-consecutive increase. “At 72.2, the index is now 10 points above the average of the fourth quarter of 2023. The rand exchange rate weakened in February, especially towards the end of the month when the PMI survey was conducted, resulting in higher input costs. A sustained increase does not bode well for South Africa’s factory gate inflation outlook,” he warns.

Van der Linde says the overall takeaway is that demand for manufactured goods remains weak amid numerous supply-side constraints.

“Factory activity is stuck in a low gear and the sector is not creating enough jobs. We maintain our view that South Africa entered 2024 with hardly any economic momentum and real gross domestic product (GDP) growth is expected to pick up only modestly to reach 0.7% this year compared to the consensus forecast of 1.2%.”

He expects that supply-side constraints will continue to undermine growth in the first half of the year, with the peak impact of tighter monetary policy also likely to still weigh on consumer pockets during this time.