The Absa Purchasing Managers’ Index (PMI), a key barometer of manufacturing activity, fell in July to 47.6 from 52.2 in June. It was the fourth straight month of decline and the first time it dropped below the neutral 50 mark since July of last year when a lethal wave of riots and looting swept KZN and Gauteng.  

“The further decline … suggests that the manufacturing sector experienced a tough start to the third quarter following a weak second quarter,” Absa said.  

Social unrest was not the sledgehammer this time round — it was one of the usual suspects, Eskom, and the scale of the rolling blackouts that were implemented in the wake of the disruptions caused by an unprotected strike over wages. In short, Stage 6.  

“Electricity supply disruptions were the likely cause of the drop in production last month,” Absa said.  

A souring global economy also played a role.  

“The international environment was also less supportive, with many developed-country PMI readings also weakening of late. Indeed, local purchasing managers turned decidedly more downbeat about business conditions going forward amid local electricity woes and concerns about global growth,” Absa said.  

The business activity subindex slid to 39.8 in July from 46.0 in June, a clear sign that there was less, well, business activity in the manufacturing sector.  

The new sales orders index remains on a steep downhill gradient, plunging to 35.4 in July from 46.3 in June. In May it was a relatively perky 58.5. This means that the manufacturing sector is ordering much less new stuff, which does not bode well for the future. Inflation is probably one of the factors constraining new sales orders.  

The employment index was back in negative territory, with almost four points shaved off, bringing it to 47.  

The South African economy is widely believed to have contracted in the second quarter (Q2) and there are mounting concerns about a global recession. The US economy has contracted now for two quarters running, which is usually the definition of a recession, although there has been some debate about this, given the US’s 3.6% unemployment rate and other factors.  

There can be no such debate in South Africa. The Absa PMI is one of the first and most telling readings of the economy’s performance so far in Q3 and it is pointing to a contraction in the manufacturing sector, at a time when consumer confidence has also been falling while interest rates rise. And then there is an unemployment rate of more than 34%.

A South African recession is plainly on the cards, finish and klaar. DM/BM