Big jump

The seasonally adjusted Investec Purchasing Managers Index (PMI) increased for the second consecutive month, jumping from 54.2 in February to 57.9 in March.

"This is its highest reading in six months, and combined with the previous reading, indicates that manufacturing activity has recovered rapidly following January's sub-50 reading," said André Roux, head of fixed income at Investec Asset Management.

"The encouraging aspect of these results is that the sector continued to expand over the past six months, although the tempo has tapered off from the rapid pace achieved in the middle of last year."

All the components of the composite index contributed to the rise in the index. According to Roux the most surprising result of the latest survey is the big jump in the seasonally adjusted employment index, which increased from 48.9 in February to 57 in March.

"The reading is encouraging, but has to be followed up by equally positive readings in order to confirm an improving factory employment trend."

Up from 55.8 to 59.1, the new sales orders index continued to rebound and January's contraction appears to have been temporary. "The improvement in sales can be linked to buoyant domestic demand as well as improving export orders given the strength in the world economy," Roux said.

The improvement in sales continued to benefit output, with the business activity index increasing to 60.7. Sales order backlogs edged higher while suppliers' performance deteriorated. Purchasing commitments continued its recovery and inventories edged higher.

The PMI price index reversed its small decline in February to 61.5 in March. "While this points to slightly higher PPI inflation rates in the months ahead, it is occurring from a low base with no indication of excessive price pressures yet," Roux said.

Finally, purchasing managers adjusted their six-month expectations upwards.

The expected business conditions index increased from 66.3 in February to 71.5 in March. The gross percentage of respondents anticipating an improvement in general business conditions increased from 46% to 51%, while the gross percentage expecting a deterioration declined from 14% to 8%.

"Better than expected business conditions and the softer exchange rate could explain the upgrading of expectations," Roux concluded.