Paddling in the water

The Investec Purchasing Managers Index (PMI) declined unexpectedly and sharply to the neutral level of 50 in November, compared to a reading of 54.1 in October.

“A reading of 50 suggests a situation of no change in business conditions between October and November, and represents a sharp slowdown in the rate of growth,” said André Roux, head of fixed income at Investec Asset Management.

“The implication is that the manufacturing sector continues to lose out to other sectors of a buoyant domestic economy,” he added.

All the components of the Investec PMI contributed to the decline in the overall index. The sharpest drop was in the employment index, which plunged 8.4 points to 45.0.

“The drop to a level well below 50 reverses all of the previous month’s gains in the index, and hints at the possibility of manufacturers shedding labour in order to stay cost-competitive in the face of the strong exchange rate and deteriorating export orders,” Roux said.

Substantial declines were also recorded in the business activity and new sales orders indices, which shed 6 points to 56 and 4.5 points to 51.2 respectively. “The combined action of both indices points to a sharp slowdown in production growth on the back of significantly weaker sales,” Roux said.

The PMI price index continued to drift higher in November, increasing from 66.7 to 68.6. “Cost pressures continue to accumulate, albeit at a moderate tempo,” Roux said.

On the positive side, both sales order backlogs and purchasing commitments are trending upwards, signalling no imminent downturn in the sector.

Finally, while a large net majority of the respondents still remain optimistic regarding business conditions over the next six months, the degree of optimism has faded somewhat in view of the disappointing November performance.

The expectations index declined from 66 to 64.4; 45% of the respondents anticipate an improvement in general business conditions over the near term, while 16% expect a deterioration.