Investec PMI remains stable in January

The seasonally adjusted Investec Purchasing Managers Index (PMI) ticked up slightly to 40.7 in January from 40.1 in December. “It remains dangerously close to the record low of 39.5* reached in November last year,” said Mokgatla Madisha, portfolio manager at Investec Asset Management.

“Producers headed into the new year with business activity under extreme pressure,” Madisha said. However, the pace of decline in output volumes decelerated marginally, with the seasonally adjusted business activity index increasing slightly to 36.9.

Input costs have receded sharply and purchasing managers increased their inventories. “Input cost pressures are currently easing at the fastest pace since late 2002, as indicated by the further decline in the PMI price index from 71.8 to 59.9 in January. At this level, the PMI price index is at its lowest level since early 2005. The large declines in global commodity prices, including oil, contributed to the deceleration in input cost inflation,” Madisha said.

He cautioned, however, that the weak demand facing the manufacturing sector is likely to prohibit any recovery in the performance of the sector over the short term. “January witnessed further deterioration in new sales orders, with the seasonally adjusted new sales order index declining to a record low of 33.2*.”

The sector also continues to shed jobs, with the seasonally adjusted employment index continuing its decline below the critical level of 50 to 43 in January.

Expectations regarding business conditions in six months remained more or less unchanged and rather bearish. “The manufacturing sector is likely to face continued headwinds from sharply weaker local and foreign demand,” Madisha concluded.

* Since inception of the survey in 1999