Investec PMI sinks to its lowest level since 2003

The seasonally adjusted Investec Purchasing Managers Index (PMI) fell to 43.7 in March – its lowest level since June 2003. “The underlying figures paint a deteriorating picture of business conditions in the manufacturing sector,” said André Roux, head of fixed income at Investec Asset Management. “Given limited prevalence of power outages during the month, the decline is a result of the weaker real economy and high input cost inflation on the manufacturing sector.”

The contraction in both output and new sales orders continued, with the seasonally adjusted business activity index posting another record low of 38.5, its lowest level since the survey commenced in 1999. The seasonally adjusted new sales order index declined to 44.0, in line with the readings of 2003, when the manufacturing sector was in recession.

The PMI price index rose above 90 for the first time since early 2002 to reach 90.7 in March. “The combination of high commodity prices and a weaker rand exchange rate saw increased pressure on manufacturing input costs during March,” Roux said.

These conditions have had a negative impact on employment levels, with the seasonally adjusted employment index declining to 42.9 from 44.1. “Clearly, manufacturers have cut back on employment in response to the deterioration in business conditions.”

Given the weaker outlook for the sector, purchasing commitments have been revised downwards. “Furthermore, purchasing managers’ medium-term expectations have reached a further low over the month,” Roux concluded.

Graph and table to follow:

Investec Purchasing Managers Index: Results for March 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.