Dismal employment backdrop drags PMI lower

After advancing towards the key 50-point mark in November, the seasonally adjusted Kagiso Purchasing Managers’ Index (PMI) lost 2.1 points in December, falling to 47.4. This marks the fourth consecutive month of contraction, a trend last observed during the 2008/2009 recession.

Abdul Davids, Head of Research at Kagiso Asset Management, highlights that the decline in the PMI is largely due to the fact that the Employment Index plummeted by 7.4 points during the month to 44.7. “This sharp decline comes amid bleak employment dynamics within the manufacturing sector and adverse sentiment towards labour following various strikes in the second half of 2012,” says Davids.

According to Stats SA’s quarterly employment figures, during the third quarter of 2012, employment growth in the manufacturing sector remained flat on a quarter-on-quarter basis and lower (by 4 000 workers) on a year-on-year basis. Davids adds that since the PMI Employment Index has been volatile in the past, more data is required before a conclusive outlook on employment prospects within the sector can be reached.

News on the production front was somewhat more encouraging as the Business Activity Index gained 1.4 points to reach 47.3. However, according Davids, the sustainability of this increase is unclear. “Despite increased production, demand for manufactured goods remained weak during December, as evidenced by the 2.8 point decline in the New Sales Orders Index,” he points out. “At 44.9, new sales orders are at their lowest level since August 2009.”

In terms of inflation, the PMI continued to suggest elevated input cost pressures, with the Price Index stabilising at a level of 79.7. “Cost pressures arising from ever-increasing electricity and fuel prices and rising wage demands are placing significant strain on manufacturers who are struggling to compete globally. As a result, conditions within the local manufacturing sector are expected to remain challenging in the year ahead,” says Davids.

© Property Wheel

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