Investec PMI edges up, but capacity and price pressures flare up

The seasonally adjusted Investec Purchasing Managers Index (PMI) continued to reflect buoyant conditions within the manufacturing sector during March, edging up slightly to 60.5 from 60.3 in February.

The seasonally adjusted business activity index increased to 64.1, implying an uptick in output during March. Growth in new sales orders remained high, but did not accelerate further, after having increased 7.4 index points in the previous survey.

"Although the results broadly resemble those of February and depict positive current conditions, there is an important difference in that the forward looking indicators are not as optimistic as before," said Andr Roux, head of fixed income at Investec Asset Management.

"The seasonally adjusted inventory index declined to 55.6 from 61.2, which may be signalling expectations of a slowdown ahead this time around, since it is backed by a decline in both the purchasing commitments as well as the expected business conditions indices," he added.

Purchasing managers have explicitly adjusted their expectations regarding future business conditions downwards, with this index declining from 71.5 to 66.0.

"Both capacity and price pressures flared up once again after having receded somewhat in February," Roux said.  Suppliers' performance deteriorated and backlogs of sales orders increased slightly. The PMI price index increased to 76.2 from 73.8 in February.

"March saw renewed pressure on the international oil price given geopolitical tensions as well as high international maize prices. In the wake of below average harvests, domestic agricultural prices were driven higher. Further, the rand traded at depreciated levels for most of the month," Roux said.

Encouragingly, the seasonally adjusted employment index continued to increase to reach a new historical high of 58.7 index points. "This result is mirrored in the BER first quarter Manufacturing Survey, where the net balance of respondents reporting an increase in the number of factory workers remained at a high level," Roux concluded.