Absa PMI drops below 50 in July

The Absa Purchasing Managers’ Index (PMI) fell from 52.2 points in June to 47.6 in July, suggesting the manufacturing sector had a tough start to the third quarter after a weak second quarter, Absa said. .

“This is the first reading below the 50-point neutral threshold since July 2021, when looting and unrest in KwaZulu-Natal and Gauteng hurt output.

Power supply disruptions were the likely cause of the drop in output last month, Absa notes.

“At the same time, the international environment was also less supportive, with many developed countries’ PMIs also weakening of late. local electricity and concerns about global growth,” Absa said.

On a yearly basis, output may look better from the low July 2021 reading, but the sharp decline in the business activity index argues against a strong quarter-over-quarter rebound after an expected decline in the second trimester, he adds.

The drop in business activity and the new orders indices were the main drivers of the drop in the overall PMI. Both indexes are deep in negative territory and point to weak domestic activity and demand.

Export sales also fell, although to a lesser extent. The employment index fell, although less than activity.

“The new sales orders index sank deeper into negative territory in July. Export sales fell, but a big drag probably also came from weak domestic demand. relatively high inventories and rising prices may have contributed to lower orders.

“After a solid second quarter, the employment index fell back below the neutral 50 point mark in July. However, the decline was less pronounced than the sharp drop in activity,” the PMI said.

The inventories and supplier shipments indices remained above 50, returning to levels in line with those observed in May. The inventory index remained volatile and rebounded to May’s level.

Despite recent volatility, the index, in general, has averaged much higher than in recent years. Sustained supply chain frictions may have led manufacturers to source inputs to mitigate potential production disruptions, Absa says.

“After rising in June, the supplier shipments index is back to May levels. rapids lead to a drop in the index.

“This would be in line with global experience. While problematic logistics and supply chains were still flagged in the responses, they figured less than in previous months. However, this could also be due to a drop in demand for ‘inputs, which speeds up delivery,’ says Absa.

Meanwhile, on the cost front, the purchase price index signaled the slowest pace of cost increases since the start of the year. Despite this, the index remains high relative to the series’ long-term history, meaning cost pressures remain high.

“However, it does show that pricing pressure at the start of the production pipeline likely peaked earlier this year. This would be consistent with producer and consumer prices rising over the next few months before an expected slowdown in rate of increase towards the end of the year or the beginning of 2023,” says the PMI.

The index that tracks economic conditions expected six months ahead fell to 49.4 in July. It was the first time since the second quarter of 2020, during the strictest phase of South Africa’s Covid-19 lockdown, that respondents expected conditions to deteriorate in the future.

“It should be noted that the vast majority of responses were received before the President Cyril Ramaphosa announced major energy market reforms last week, which were generally well received and could have countered some of the pessimism,” Absa said.

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