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Absa Purchasing Managers’ Index edges down in June, b...

Business Maverick

BUSINESS MAVERICK

Absa Purchasing Managers’ Index edges down in June, but employment index back in positive territory

Workers sew garments on machines at the Prestige Clothing (Pty) Ltd. textile factory, operated by The Foschini Group Ltd., in the Maitland district of Cape Town, South Africa, on Thursday, Dec. 10, 2020. South African retailers including The Foschini Group and Woolworths Holdings Ltd. are increasing investment in local clothing manufacturers -- both to reduce a dependency on Chinese imports and secure a supply chain thrown into disarray by Covid-19 restrictions. Photographer: Dwayne Senior/Bloomberg via Getty Images

However, Absa warned: ‘The move to adjusted Alert Level 4 lockdown restrictions... could stall the broader economy’s quarterly growth momentum at the start of the third quarter.’

The Absa Purchasing Managers’ Index (PMI) dipped to 57.4 index points in June from 57.8 in May. But, in a promising sign, the employment sub-index edged back up above the neutral 50 mark. However, Absa said that the number of jobs in the manufacturing sector remains far short of pre-pandemic levels.

Absa said that all of the PMI’s five subcomponents were above the neutral 50 mark, so sentiment is broadly in positive territory – but a far cry from bullish. The PMI is derived from detailed monthly surveys of purchasing managers in South African manufacturing and is a key measure of the sector’s health.

However, Absa warned: “The move to adjusted Alert Level 4 lockdown restrictions at the end of June, especially if sustained for longer than the initial two-week period, could stall the broader economy’s quarterly growth momentum at the start of the third quarter. This could result in a possible slowdown in the demand for selected manufactured goods, and thus production.”

Purchasing managers for alcohol producers will certainly be glum as no one can (legally) purchase their products at the moment.

“The move to Level 4 is likely to have soured expectations further, specifically for those businesses with close ties to the hospitality industry. On the positive side, the outlook for manufacturers targeting the European and US export markets remains very bright, with recent international PMI readings remaining at or near record-high levels,” Absa said.

The new sales orders index slipped to 57.3 in June from 60.5 in May, but Absa said that: “While demand slowed somewhat, the index points to continued solid growth in orders in June.”

Surprisingly, the employment index edged back into the positive range, to 51.7 from 49.6.

“While there is no official employment data for Q2 available as yet, it is noteworthy that the PMI’s employment index recorded its best quarter since 2007. The Quarterly Employment Statistics from Stats SA for Q1 showed an increase of 4,000 formal sector manufacturing jobs on a quarterly basis, but that employment was still down by 95,000 compared to 2020 Q1,” Absa said.

“This means that even if the job losses have now stopped, the sector has a long way to go to regain its pre-Covid level of employment.”

Like the broader economy, payrolls are still far from pre-pandemic levels. And in a sector like manufacturing, which is ripe for automation, there is no guarantee they will all come back. There are still headwinds aplenty, including Eskom’s woes and the prospect of further lockdown restrictions. DM/BM

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