The seasonally adjusted Absa Purchasing Managers’ Index (PMI), compiled by the Bureau for Economic Research, ticked down to 48.1 in March from 48.8 in February. 

The PMI shows that, after a solid start to the year, this was the second straight month that the index pointed to a deterioration in business conditions in the manufacturing sector.  

“Still, when considering the performance of the business activity index through the entire first quarter, it suggests that output could improve from the quarterly contraction recorded in the fourth quarter of 2022,” the report says.  

Despite the business conditions worsening, respondents to the PMI were reported to be optimistic about business conditions going forward. Following a sharp deterioration in February, the index tracking expected business conditions in six months’ time rose to 55.5 from 46.8 in February.  

“This means that purchasing managers generally expect conditions to look better later this year. However, the long-term average of this index is well above the current reading, suggesting less optimism than usual,” the PMI report says. 

On the other hand, the PMI showed that domestic demand was struggling, with local demand faltering owing to loadshedding.  

Moreover, in contrast to business activity, the new sales orders index performed worse relative to the fourth quarter. This was despite the PMI’s index tracking export sales performing well through the first quarter and rising to an almost two-year high in March. 

The PMI showed signs that delivery times were normalising, with the supplier deliveries index recording another steep decline to reach 50.8, the lowest level since the start of the pandemic. This was attributed to less constrained global supply chains, a trend which has also been reflected in some international PMI surveys.  

“This is a positive development for the sector. However, on the negative side, sustained weak demand likely also explains some of the recent downward movement in South Africa,” the report states. 

However, the bank warned that, on the negative side, sustained weak demand also explained some of the recent downward momentum locally.  

“This is because the index is inverted. Pre-Covid-19, when supply chain issues did not have such a bearing on the index, faster deliveries tended to be accompanied by weak demand conditions. To capture this, faster deliveries were seen as an adverse development and reflected in a decline of the index that subtracted from the headline PMI,” the PMI says. 

Meanwhile, the purchasing price index halted its recent upward trend and fell slightly in March, despite a slight increase in the diesel price at the start of the month and a weaker rand exchange rate – on average to the dollar – compared with February. However, Absa believes less intense loadshedding during the second half of March would have helped to reduce the costs of running diesel generators. 

Meanwhile, the business activity index ticked up somewhat following a sharp decline in February. Owing to a strong start to the year – also reflected in a solid monthly uptick in official manufacturing production during January – the average for the business activity index in the first quarter turned out to be about two points above the fourth quarter of last year’s average. This suggests that manufacturing output may improve in the first quarter following the quarterly contraction recorded at the end of 2022. 

In contrast to business activity, the new sales orders index had a worse quarter compared with last year’s fourth quarter. The index pointed to a modest rate of declining demand throughout the entire quarter, with local demand struggling because of loadshedding.  

However, the PMI’s index tracking export sales performed well through the first quarter and rose to an almost two-year high in March. 

The employment index fell for a third consecutive month to 45.4 in March. According to the latest quarterly employment statistics from Statistics South Africa, the level of formal employment in the sector barely changed through 2022, and the recent PMI data does not indicate an improvement in job growth during 2023 either. 

The inventories index failed to recover most of February’s losses and remained stuck below the neutral 50-point mark for a second month.