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.

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