Investec PMI sinks below critical level of 50

The seasonally adjusted Investec Purchasing Managers Index (PMI) sunk to 46.4 in February, well below the critical level of 50. “In all likelihood, the decline reflects not only the effect of a softening in the real economy, but also the impact of the electricity crisis on the sector,” said André Roux, head of fixed income at Investec Asset Management.

Both output and new sales orders contracted during the month. The seasonally adjusted business activity index declined sharply from 50.5 to 42.4, its lowest level since the survey commenced in 1999. The corresponding index for new sales orders also dropped below the critical level of 50 to 46.2. “This index is now in line with readings posted in 2003, when the manufacturing sector was in recession,” Roux pointed out.

Tight conditions were aggravated by a significant increase in input price inflation. The PMI price index surged to 86.8 from 79.5, it highest level in seven years. “Commodity prices in general increased sharply during the month, on the back of not only the domestic electricity crisis but also a range of global factors. Furthermore, these increases were exacerbated by the depreciation in the rand exchange rate,” Roux said.

The seasonally adjusted employment index plunged to 44.1, after coming in above the critical level of 50 index points for 20 consecutive months. “Even though this reading may have been influenced by the electricity blackouts, it also points to the likelihood that manufacturers have begun to cut back on employment in response to the deterioration in business conditions,” Roux said.

The seasonally adjusted inventory index picked up slightly to 53.2 during the month, while purchasing managers increased their purchasing commitments. “These signal that managers expect pressure on conditions to alleviate somewhat in the next few months. However, their expectations for conditions in six months’ time were adjusted downwards, with this index at its lowest levels since 1999,” Roux concluded

Graph and table to follow - Click in images to enlarge:

Investec Purchasing Managers Index: Results for February 2008

The survey is conducted on a monthly basis by the Bureau for Economic Research at the University of Stellenbosch in conjunction with the Institute of Purchasing Managers in South Africa and sponsored by Investec Asset Management.