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Absa PMI climbs in May — but employment index back in...

Business Maverick

BUSINESS MAVERICK

Absa PMI climbs in May — but employment index back in negative territory

A painter displays a paint roller to indicate his skill as he waits for work at a road junction in Cape Town. (Photo: EPA-EFE. / Nic Bothma)

In a good sign for the manufacturing sector, the Absa Purchasing Managers’ Index recovered from a slight dip in April to 56.2, rising to 57.8 in May. But worryingly, after a surprise surge in April, the employment sub-index is back in negative terrain.

Based on detailed monthly surveys of purchasing managers in South African manufacturing, the Absa PMI is seen as one of the key barometers of the sector’s health. So May’s upward spike will be welcome. 

“The new sales orders index regained last month’s loss and rose to 60.5 index points in May. This was despite respondents noting a dip in export sales, which means that domestic demand likely drove the improvement,” Absa said in a statement.

Rising domestic demand is clearly a sign of recovery, with the economy’s rebound in this quarter expected to pick up pace. The pandemic’s third wave could yet spoil that party, but the renewed restrictions announced on Sunday by President Cyril Ramaphosa are so light that the impact on economic activity will be negligible. 

“The business activity index more than clawed back April’s losses and rose to a solid 58.8 index points in May. So far in Q2, the index has averaged about four points above 2021 Q1’s reading. This means that the manufacturing sector could record another quarterly expansion in activity,” Absa said. 

But none of this seems to be making a meaningful dent in unemployment, which Statistics South Africa said on Tuesday had risen to record highs in Q1 of 2021. Indeed, the employment index of the Absa PMI fell back into negative territory in May, falling to 49.6 from 54.4 in April.

Absa noted that: “Despite the decline, the index remains relatively high compared to its history… the index would have to remain at an elevated level for a sustained period before one can confidently say that job creation in the manufacturing sector is on the mend.” 

This is becoming a worrying theme: an economy on the rebound — that is not creating employment in a sustained or meaningful way. DM/BM

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