By André Coetzee, Kagiso Securities.
The seasonally adjusted Kagiso PMI rose to 47.6 index points in October from a revised 45.9 during September. Last month’s 1.7 index point gain is on top of a 6.4 point jump in September and confirms that SA manufacturing output is moving back towards expansionary territory.
While it is disappointing that the headline PMI was unable to rise above the key 50 level in October, the sub-indices paint a consistent picture of a sector that is emerging from a deep contraction with both the business activity and new sales orders indices building on September’s robust gains to reach the highest levels since April 2008.
Furthermore, the near-term demand indicators hint towards sustained improvement going forward with the backlog of sales orders index also reaching the best reading since 2008Q2 and purchasing commitments rising to the neutral 50 level for the first time since August 2008. The improved activity levels were reflected in a continued moderation of job losses in the factory sector œ the PMI employment index rose for the second consecutive month. This is welcome news after Stats SA’s Quarterly Labour Force Survey showed that the sector shed 150,000 jobs during 2009Q3, more than double the 71,000 jobs lost during the first half of 2009.
After increasing marginally in September, the PMI price index declined somewhat in October. The index has now been below 50 for four consecutive months, in line with the actual data that continues to show producer price deflation.
Source: Kagiso Securities, November 2, 2009.
