The seasonally adjusted Absa Purchasing Managers’ Index (PMI) rose to 58.6 index points in February, compared with 57.1 in January, suggesting that the manufacturing sector performed well during the month.

Absa and the Bureau for Economic Research (BER), which compiles the PMI on behalf of Absa, explain in a statement that the improvement was driven by increases in all five subcomponents making up the headline PMI.

Increases in new sales orders have been occurring since the second quarter of 2021, which was driven by and large by improvements in exports, which has been rising further this year. The new sales orders index rose to 56.9 points from 55.5 in January.

The BER cites respondents saying a rise in production volumes has been supported by better demand – the business activity subcomponent ticked up to 59.6 points in February, compared with 56.6 in January.

This was despite a bout of load-shedding at the start of the month.

Another encouraging outcome of the PMI survey was the employment index edging back up above 50 points, which suggests that employment levels may be stabilising after the manufacturing sector has been bleeding jobs for several years, even before the Covid-19 shock.

The inventories index reached a high of 60.1, which could be a sign of companies pre-emptively stocking up in case of possible shortages and delays.

The supplier deliveries index was largely unchanged at 65.8 in February, which may worsen depending on how the Ukraine conflict unfolds, since it may bring about renewed disruptions in global supply chains.

Absa and the BER note that purchasing managers are upbeat about expected business conditions in six months’ time. The index for business conditions declined marginally to 69.5 points from an almost four-year high of 71.3 in January.

One factor that has the potential to sour sentiment going forward is a possible further increase in input costs. This is especially the case given an environment where demand is still recovering, which means that not all cost increases can be pushed on to consumers through price increases.

In February, the purchasing price index climbed by a point to a high of 89.8, which is already almost five points above the average recorded in 2021.

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, says the BER.

The risk is that the oil price remains high or rises higher. 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.