The seasonally adjusted Absa Purchasing Managers’ Index (PMI) edged above the 50-point mark and recorded an expansion for the first time in nine months, increasing by 2.3 points to 50.8 in July, driven by a relatively strong recovery in demand, Absa said on August 1.

The last time the headline PMI was in expansionary territory was in October 2024 at 52.6 points.

Absa reported that new sales orders rose by 9.7 points to 55.9 in July, recording a third consecutive month of improvement. This indicated a much stronger recovery in demand at the start of the third quarter.

Export sales also showed a significant increase, albeit from a low base, suggesting that manufacturers remained cautious amid regulations and ongoing trade negotiations.

The improvement in demand contributed to a modest uptick in production, with the business activity index increasing by 5.2 points to 47.1 in July. However, the index remained below the neutral 50-point mark for the ninth consecutive month, indicating continued contraction in overall activity levels.

The supplier deliveries index increased by 1.4 points to 56.4 in July. Absa attributed this to the strong increase in new orders, which typically leads to longer delivery times and some delays. The longer delivery times, while not always positive in other contexts, may indicate rising demand placing pressure on suppliers.

Despite the recovery in demand and the resulting uptick in production, employment levels deteriorated. The employment index declined by six points in July, reaching 43.7. This reversed the gains made in June and returned the index to levels last seen earlier in the year.

Absa stated that the weak employment level may be owing to the slow recovery in activity, which, despite recent gains, remained in contractionary territory. This signalled that manufacturers may be waiting for a more sustained and robust recovery in demand before increasing their workforce.

Cost pressures mounted during the month, with the purchasing price index rising by 1.2 points in July. This reflected the increased cost of some input materials. Absa linked this to a rise in global crude oil prices, which pushed up domestic fuel prices.

Petrol and diesel prices increased by between 52c/ℓ and 84c/ℓ, depending on the grade. Nevertheless, Absa noted that the current level of the purchasing price index remained the second-lowest in more than eight years, suggesting that, despite the uptick, broader input cost pressures were still relatively subdued.

In currency markets, the rand remained relatively stable throughout July, trading below R18 to the dollar. This occurred despite ongoing global uncertainty, which has generally contributed to volatility in emerging market currencies.

The index tracking expected business conditions in six months’ time declined from 62.5 points in June to 56.4 in July. Although still above the neutral 50-point level, the direction of the index suggested that manufacturers anticipated an increasingly volatile and challenging trading environment on both the global and domestic fronts.

Absa said the drop in future expectations pointed to growing concerns among manufacturers regarding the sustainability of the recent recovery in demand and the broader economic outlook.