Investec PMI drops to an all-time low

The seasonally Investec Purchasing Managers Index fell to an all-time low of 42.8 in July since its inception in September 1999, down from 43.8. “This is testimony to the headwinds facing the manufacturing sector,” said Mokgatla Madisha, portfolio manager at Investec Asset Management.

“The recent weakness in the sector is consistent with the BER manufacturing business confidence index, which declined to a seven and a half year low during the second quarter. However, the decline is yet to reflect in the official manufacturing sales and production data,” Madisha added.

The main contributor to the decline in the overall index was a sharp contraction in new sales orders. The seasonally adjusted new sales orders index plunged to a record low of 37.9 in July, dropping below 40 for the first time since the survey commenced in 1999.

Business activity remained lacklustre and purchasing managers reported a significant drop in inventory levels. “This does not bode well for activity in the manufacturing sector over the near term, pointing to a further reduction in demand consistent with weaker purchasing manager expectations of business conditions in six months,” Madisha said.

Against this backdrop of weak demand and reduced activity, the manufacturing sector continued to shed jobs, with the seasonally adjusted employment index dropping further to reach 42.4 in July.

The PMI price index increased to 91.8, after decreasing marginally in June. “While the recent oil price decline coupled with some appreciation of the currency will bring some relief going forward, rising transport and energy costs continue to threaten a recovery in the sector,” Madisha said.

“The combined effect of weak demand and high cost pressures is severely constraining manufacturing sector activity, while the deterioration in the outlook for both domestic and global demand implies at best a slow and protracted recovery of the sector,” he concluded.