The Absa Purchasing Managers Index (PMI) is weighted so that 50 is regarded as the “neutral” threshold. A measurement of the expectations of business managers, it had plunged to 5.1 in April amid the economic meltdown and uncertainties of the first full month of hard lockdown. 

It has now notched four straight months above the neutral level. The index “posted a robust increase to 57.3 index points in August, up from 51.2 in July”. 

“This points to a further improvement in conditions in the manufacturing sector as South Africa’s Covid-19 lockdown restrictions eased further to Level 2 in August,” Absa said in a statement on Tuesday 1 September. 

“As a result, both business activity and new sales orders rose in August. The improvement in demand was not only due to South Africa moving to a lower lockdown level, but was also supported by an uptick in export orders,” Absa said. 

So far, so good — any improvement on these fronts is clearly welcome. But there remains a deep and gaping hole to climb out of.

 “The PMI suggests that the recovery stalled in July, but likely found renewed momentum in August. Given the magnitude of the drop recorded in April, and the continued restrictions placed on the manufacturing sector until recently, as well as social distancing measures possibly still preventing many factories from returning to full capacity currently, it will take months of strong month-on-month growth to return to the actual level of activity recorded prior to the start of the nationwide lockdown in late March,” Absa said. 

And on the jobs front, the situation remains very bleak, with the employment index — one of six components of the overall index — still far below the others. 

For example, the business activity index rose 4.1 points to 67.0 in August, while the new sales orders index posted a sharp rise to 71.1 from 53.4 in August. 

But the employment index, while it nudged up, remains stuck in negative territory at 39.0.

“The gap between the activity and demand indices on the one hand and the employment index on the other remains very large. 

This suggests that while activity is picking up on a monthly basis, manufacturers are still shedding jobs, although the pace of job losses has slowed somewhat,” Absa said. 

That is a massive concern as the unemployment rate in the first quarter of 2020 stood at 30% and has unquestionably surged since. Manufacturing remains a key employer and a sector the government has long tried to talk up with limited success. 

Other data also suggests an extremely uneven and sluggish recovery. Central bank data on Monday showed growth in private sector credit in South Africa in July braked to 5.12% year-on-year from a revised 5.63% in June, the fourth straight month that the number has slowed.

That suggests the South African Reserve Bank’s 300 basis points in rate cuts so far in 2020 have failed to significantly stimulate borrowing.

On the other hand, without the cuts it is plausible that credit extension would have contracted, or its growth would have been even more muted. The full scale of the challenge faced by the economy will become clearer next week when Stats SA releases Q2 GDP data. That is expected to show a massive economic contraction in the range of 50%. DM/BM