Business Maverick

Business Maverick

Absa PMI rises again in February, sign of tentative manufacturing rebound

Clear glass bottles cool after molding at the Nampak Ltd. manufacturing plant in Roodekop, South Africa, on Friday, Feb. 26, 2016. (Photo: Waldo Swiegers/Bloomberg via Getty Images)

The Absa Purchasing Managers’ Index extended its recent climb in February. Encouragingly, all five sub-indices that comprise the headline number rose in a sign that the manufacturing sector is gradually rebounding. 

The Absa Purchasing Managers’ Index (PMI) rose to 58.6 in February from 57.1 in January, when it gained three points compared to December. A rising PMI suggests that confidence is returning to South Africa’s vital manufacturing sector, though the road to recovery remains strewn with potholes.

“The improvement was driven by increases in all five subcomponents making up the headline PMI, suggesting that the manufacturing sector continued to fare well during the second month of the year,” Absa said in a statement.  

This includes the employment sub-index, which edged up to 50.7 from 49.2. This puts it back into marginally positive territory as 50 is the neutral level. In December, it had plunged more than eight points to 42.4. 

“An encouraging outcome of the February PMI survey was the employment index edging back up above 50 points. Recent relatively better readings for this index suggests that employment levels may be stabilising after the sector has been bleeding jobs for several years (pre-dating the Covid shock),” Absa noted. 

So employment levels in manufacturing are hopefully holding steady, though there are no signs of significant job creation in the sector. A fuller picture will be provided when Statistics South Africa (Stats SA) publishes the results of the delayed Quarterly Labour Force Survey (QLFS) for the fourth quarter (Q4) of 2021. The Q3 survey revealed a record unemployment rate of 34.9%, a signal that the overall rebound in economic activity from the 2020 Covid collapse was not translating into new jobs. 

More light will also be shed on the overall state of the manufacturing rebound next week when Stats SA releases the Q4 and full-year 2021 gross domestic product (GDP) data. Expectations are that the economy as a whole expanded less than 5% last year after contracting 6.4% in 2020. 

And there are plenty of headwinds that could sour the manufacturing outlook for 2022 after a cautiously promising start. 

“Looking ahead, a surge in the Brent crude oil price means that the fuel price will again increase sharply this week, with inputs from the petrochemicals value chain also more expensive. The risk is that the oil price remains high(er). This, or a sudden weakening of the rand exchange rate, also has the potential to lift freight costs even higher, which some respondents already flag as a key concern. Renewed disruptions in the workings of global supply chains amid an escalation of the Ukrainian conflict will not only have cost implications but could also negatively impact sentiment,” Absa warned.  

The Absa PMI is based on a monthly survey of purchasing managers in the South African manufacturing sector carried out by the Bureau for Economic Research. This is the group that buys stuff for the factories and as such, it is a key indicator of confidence — or the lack thereof — in the sector. DM/BM

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