ABSA PMI business activity indicator crashes to all-time low

The business activity index of the ABSA PMI survey crashed to an all-time low of a mere 5.1 index points in April 2020.

The decline means that manufacturing output came to a near standstill during the nationwide lockdown, with almost all respondents reporting a decline in activity compared to the previous month.

The Purchasing Managers’ Index (PMI) is a guide of the prevailing direction of economic trends in the manufacturing and service sectors in South Africa. The purpose of the PMI is to provide information about current and future business conditions to company decision makers, analysts and investors.

According to the latest ABSA PMI findings, the current reading is about 25 points below the lowest level recorded during the global financial crisis, which suggests that the decline in actual manufacturing output will be well in excess of the drop recorded at the time (a 23% annual fall in April 2009).

While some essential goods production continued during April, this was concentrated in specific subsectors. With no to little activity in the South African economy, overall demand for manufactured goods also plummeted. The new sales orders index plunged to 8.9 index points in April and, like business activity, reached a record low by some margin (series since September 1999).

Export sales also fell sharply in April. The employment index tracked activity lower but did not decline by the same margin as the business activity and new sales orders indices. About half of the respondents reported a decline in their staff complement. Formal-sector employment tends to lag activity trends, which means that further job losses are likely going forward.

“The PMI survey shows the immediate, devastating impact the lockdown had on manufacturing output and overall demand. While some easing of restrictions from May should aid a slow recovery in coming months, a lot of manufacturing capacity will remain idle for some time,” said Miyelani Maluleke, economist, ABSA Corporate and Investment Banking. As a result, Maluleke added, the index tracking expected business conditions in six months’ time ticked down further from a r