Market research and financial intelligence company S&P Global's South Africa Purchasing Managers’ Index (PMI) rose to 50.3 in July from 50.1 in June, signalling a slightly stronger, but marginal improvement in business conditions.

The headline index has been in growth territory for three months in a row. Readings above 50 signal an improvement in business conditions on the previous month, while readings below 50 show a deterioration.

Of the five subindices that make up the headline PMI, only new orders and employment contributed positively to the July figure.

New orders increased during July, following a slight dip in June. Several companies reported an uplift in client activity, but economic conditions were still seen as challenging.

Subsector trends were split in July, with expansions in services and wholesale and retail opposing downturns in industry and construction.

Additionally, domestic sales improved, while new export business dropped for the fourth month in succession.

Output was broadly unchanged at the start of the third quarter. However, this still marked an improvement since June when a slight decrease was noted.

Meanwhile, firms in South Africa raised their employment for the second consecutive month in July. While the increase was moderate, it was the quickest recorded since May 2024. Survey panellists cited a mix of both permanent and temporary hires, S&P says.

Higher employment supported business capacity, as did stabilising supply chains. This was signalled by an improvement in vendor performance for the fourth month running, as port congestion continued to ease. Firms were thereby able to raise their purchases, although the pace of growth was only modest.

Further, in July, companies were better positioned to finalise existing orders and contracts, resulting in the quickest decrease in backlogs since February. For some businesses, this allowed them to destock unused inputs, contributing to a slight decline in total inventories, the firm says.

On the cost front, the survey data indicated increased price pressures in July, largely driven by a sharper rise in staff costs. Wage pressures climbed for the third consecutive month and remained well above the series trend.

Purchase costs also rose at a faster pace, which panellists commonly attributed to higher charges for fuel and supplied materials.

Overall, the rate of input price inflation was the sharpest since April, S&P points out.

Meanwhile, companies chose to pass some of their cost burdens onto clients, resulting in a further rise in output prices. However, the increase was modest and slightly weaker than in the previous month. In contrast to the general price trend, the construction sector recorded decreases in both input costs and output prices.

Additionally, the year-ahead assessment for business activity improved during July, after hitting its lowest mark for almost four years in June.

Firms were more hopeful about future demand and new projects. The level of confidence was the highest since January, but remained weaker than the average recorded last year, S&P says.

“Business conditions across South Africa improved in July, driven by greater sales and increased employment. The rise in staffing was the fastest for more than a year, showing that firms are more willing to take on new workers in order to boost their capacity and competitiveness,” says S&P Global Market Intelligence senior economist David Owen.

“This had an adverse impact on costs as wage inflation accelerated, leading to the quickest rise in business expenses since April. However, the increase in charges remained modest and even softened, which suggests that firms largely expect this cost jump to be temporary.”

There was also a solid recovery in business expectations in July, after the survey metric dropped to its lowest level since mid-2021 in June.

“Firms highlighted a slight improvement in the demand outlook, although there were still concerns about global trade policy and exchange rate movements,” says Owen.