By André Coetzee, Kagiso Securities.

The seasonally adjusted KagisoPMIimproved slightly in May,posting an increase to37.3 index points œ the first risesinceJanuary 2009. The average PMI for the first two months of 2009Q2 is 36.5 versus a Q1 average of 38.6.

Steadyincreases(albeitfromverydepressedlevels)intheoutputvolumeandnewsalesordersindicesoverthepasttwomonths suggestthatthedeclineinmanufacturingoutputmaybestabilizingfromthesharpfallspostedearlierthisyearœtheseasonally adjusted business activity and new sales orders indices rose to 35.1 and 35.7 respectively.

Indicators of capacity utilization and near-term demand also improved somewhat from April’s record lows, but current levels indicate thatactivityinthemanufacturingsectorisstillcontracting,albeitatamoremoderaterate.Theseasonallyadjustedinventories index increased to35.4 points but thepurchasing commitments indexfailed torespond,staying almost constant at a verylow29.6 points.

Onamoreupbeatnote,thePMIpriceindexdroppedbelow50(to45.6)forthefirsttimesince2004,raisingtheprospectthat producerpriceinflation(asmeasuredbyStatsSA)couldmoveintodeflationaryterritoryintheforeseeablefuture.Meanwhile, for the first time since September 2008 a majority of purchasing managers expect business conditions to improve in 6 months’ time.


 Source: Kagiso Securities, June 1, 2009.

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