South Africa’s manufacturing sector is enjoying higher levels of employment for the first time in over a year and activity remains stable, according to the Purchasing Managers’ Index (PMI) survey released in Johannesburg on Friday.
The PMI is the country’s key indicator for activity in the manufacturing sector and is composed monthly by the Bureau for Economic Research and the Chartered Institute of Purchasing and Supply; it is sponsored by Kagiso Tiso Holdings.
An index reading of lower than 50 shows contraction in the sector, while a reading of over 50 illustrates expansion – it was 53.6-points overall in May, and employment rose 4.2 points from 48.8 to 53.
“This is the first time since February 2011 that this index has risen above the 50- point mark to signal employment expansion in the manufacturing industry,” Abdul Davids, head of research at Kagiso Asset Management, said in a statement. It signalled an expansion of the factory sector workforce.
This may be a delayed reaction to the healthy business activity levels in South Africa so far in 2012, Davids said.
The manufacturing sector has been a strong performer, as production expanded by 7.7 percent in the first quarter of this year. It is the economy’s second biggest sector, and is responsible for over 15 percent of overall output and 14 percent of formal employment.
This may be part of the reason that the South African PMI has compared favourably to the European and Chinese indexes. “The level of the SA PMI remained well above the initial May readings for both the EU and Chinese PMI, which printed below the all-important 50 mark,” Davids said.
The PMI looks at nine key indicators to determine economic activity in manufacturing. These are: business activity, new sales orders, backlog of sales orders, inventories, purchasing commitments, expected business conditions, suppliers’ performance, prices and employment.
It was not all good news for the sector, as several of these indicators declined between April and May. Especially hard hit was new sales orders, which dropped from 55.4 to 51.7.
“May signalled the third consecutive month that the index declined by 3.5 or more index points and suggests a fairly fast deterioration in the demand for locally produced factory goods from February’s high of almost 65 index points,” Davids explained.
Looking ahead, Davids predicted continued expansion but at a slower pace. “The growth momentum since the fourth quarter of last year will slow significantly,” he said. “Overall we will remain in expansionary mode but at a slower pace.”