Welcome increase in two benchmark PMIs

In August, South Africa’s Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to above the neutral level of 50 for the first time in six months, boosted mainly by an increase in business activity.

The S&P Global PMI is a composite gauge designed to give a single-figure snapshot of operating conditions in the private sector and covers all the services sectors as well as agriculture, mining and manufacturing. Although export sales were disappointing, several companies participating in the survey reported an uptick in customer numbers and a recovery of domestic demand.

According to David Owen, Senior Economist at S&P Global Market Intelligence, the August PMI pointed to an encouraging turnaround in the private sector midway through the third quarter, due to companies having reported an increase in output for the first time since last year.

Demand conditions were broadly steady, whilst inflationary pressures were also subsiding somewhat, with overall business costs rising by the smallest margin since January.

In August, South African firms experienced an increase in both hiring and purchasing activity, aligned to the need to build new capacity and limit backlogs of existing work. Employment numbers rose at the strongest rate since last September, while input buying grew for the first time in six months.

Absa PMI also ticks up

Absa’s manufacturing PMI followed suit with a modest improvement in August, also driven by the business activity index, which jumped by almost 12 points to 50. According to Absa, the sub-index for new sales orders also saw a marginal improvement in August, but remained below the key level of 50 (separating expansion from decline)

The sub-index for supplier deliveries (which is inverted to show an increase when delivery lead times are longer), increased further in August to lift the headline PMI, with the most likely reason for longer delivery times in August to be found in supply-side constraints as opposed to only higher demand in some sectors.

The modest improvement in these two benchmark PMIs is aligned to the pronounced recovery of the value of inventories in the South African economy, a trend that commenced during the 2nd half of 2021, moved into positive territory in 2022 and rose to its all-time highest level during the 2nd quarter of 2023.

Although the value of inventories is modest when compared to total capital formation, the current trend is a clear sign of renewed activity in the area of fixed investment in new productive capacity, as well as supportive infrastructure.

Further increases in the PMI for the overall economy may be forthcoming as a result of the record imports of machinery and equipment during the first six months of the year. Despite a challenging business environment, these data sets once again confirm a large measure of economic resilience.