Purchasing Managers’ Index (PMI) ) ticked down slightly in March to 48.1 from 48.8 in February

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) fell to 48.1 in March from 48.8 in February. After a strong start to the year, the indicator indicated a worsening in business conditions in the manufacturing sector for the second consecutive month. Yet, when the performance of the business activity index is considered for the full first quarter, it shows that production might rebound from the quarterly decrease recorded in the fourth quarter of 2022. Domestic demand, on the other hand, appears to be failing, with some remarks pointing to local demand weakening owing to load-shedding. In fact, in contrast to business activity, the new sales orders index underperformed in the fourth quarter. This was despite the PMI’s index tracking export sales performing well through the first quarter and rising to an almost two-year high in March.

In a further sign that delivery times are normalising, the supplier deliveries index recorded another steep decline to reach 50.8, the lowest level since the start of the pandemic. This is likely partly due to less constrained global supply chains, a trend also reflected in some international PMI surveys. This is a positive development for the sector. However, on the negative side, sustained weak demand likely also explains some of the recent downward move in South Africa.

Nevertheless, the buying price index paused its current increasing trend in March and dipped marginally. This was despite a modest rise in the price of fuel at the beginning of the month and a lower rand exchange rate (on average against the US dollar) compared to February. But, less heavy load-shedding in the second part of March would have reduced the expenses of running diesel generators.

Respondents turned more optimistic about business conditions going forward. Following a sharp deterioration in February, the index tracking expected business conditions in six months’ time rose to 55.5 from 46.8 in February. This means that purchasing managers generally expect conditions to look better later this year. However, the long-term average of this index is well above the current reading, suggesting less optimism than usual.