Business Maverick

BUSINESS MAVERICK

Absa PMI declines in December, signalling recovery was fading before renewed lockdown

Absa PMI declines in December, signalling recovery was fading before renewed lockdown
(Illustrative image | Source: Adobe Stock)

The Absa Purchasing Managers’ Index declined further in December, signalling that momentum in the manufacturing sector was faltering even before lockdown measures were hardened. This bodes ill for the first quarter of 2021.

The Absa Purchasing Managers’ Index (PMI) fell in December 2020 to 50.3 from 52.6 in November, its lowest reading since July 2020. The index, based on a survey that measures the expectations of purchasing managers in the manufacturing sector, crashed to a record trough of 5.1 in April, when the initial hard lockdown to contain the Covid pandemic’s advance brought most of the economy to a virtual standstill.

It had been rising, at times surging, by fits and starts since then, reaching 60.1 in October, which was at least a relatively comfortable margin above the neutral level of 50. It has since been in decline.

“The reading just above 50 index points suggests that growth is levelling off in the manufacturing sector after solid month-on-month gains were recorded in the wake of April’s lockdown-induced plunge in activity. Indeed, despite a strong start in October, the average reading for the fourth quarter is basically unchanged from the third quarter. This suggests that while another quarter-on-quarter uptick in manufacturing output is likely, the pace of the recovery momentum has slowed,” said Absa.

“Worryingly, the business activity index declined to 44.9 index points in December. Strictly speaking, this means that manufacturing output declined compared with the previous month,” the bank said. 

The employment index dropped to 43.8 from 47.2 in November, which Absa noted “suggests that the employment recovery will probably continue to be very subdued”. That means the sector is not creating jobs and is probably shedding them. Remember the presidency and government’s pledges about job creation?

Purchasing managers must be in a tough position as the renewed lockdown regulations and the possibility of additional restrictions make it extremely difficult to plan — and planning requires that businesses buy things. 

This correspondent had a brief conversation last Thursday with the manager of a restaurant in my hood, a franchise. She asked if I was aware if the president would announce any new measures that night.

“I need to order today for next week, but I am at a loss as to what to do,” she said glumly. It was lunchtime, often a relatively busy time for the business, but it was empty — she said the bans on alcohol sales always pushed them “over the cliff”.

The wider point is that businesses big and small are unable to plan properly, and that impacts on their expenditure decisions, with knock-on effects throughout the economy. So, among other things, the PMI is an index of uncertainty.

The outlook for January is grim, to say the least. The renewed lockdown measures will curb domestic demand even further. NKC African Economics said on Friday that this had prompted it to revise its prognosis for Q1 2021.

It now sees a quarter-on-quarter GDP contraction of 3.3% for the period, a significant revision from its previous forecast of tepid growth of 0.6%. That almost certainly means more jobs lost. Meanwhile, there are a lot of businesses out there — not to mention households and individuals — that don’t know what next week or month will herald and they are spending, or not spending, accordingly. BM/DM

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