In June 2011, the Kagiso PMI manufacturing index dropped further to 53.9, compared with 55.1 in May and a recent high of 57.2 in March (seasonally adjusted). Although South Africa’s PMI index has been above the critical 50 point level for 8 consecutive months, suggesting that manufacturing activity continues to expand, this is the third consecutive monthly decline in the index, indicating that the rate of expansion in manufacturing has slowed in Q2 2011 relative to the extremely high rate of growth recorded in Q1 2011.
Similar to the ISM manufacturing survey, an index level above 50 signals expansion, while a reading below 50 indicates contraction. It is clear from the charts attached that the PMI index is relatively volatile from month-to-month. In addition, the index has a relatively short history. However, despite these limitations, the index has become an important gauge of manufacturing activity.
Almost all components of the PMI moved lower in June, including the business activity index, new sales orders, expected business conditions, and employment. Crucially, the employment index remained well below the key 50 index level at 47.7 and has been below 50 for 11 of the last 12 months, indicating that the manufacturing sector is struggling to create jobs despite the overall improvement in business conditions.
The prices paid component of the PMI eased further to 76.0 in June from 80.0 in May and an extremely high 88.0 in March. Despite the fall-off in the index during June, at 76.0, the reading will continue to highlight some concerns about general upward trend on producer inflation.
There is normally a good relationship between the PMI reading and the SA manufacturing data. If the relationship holds (which would be the general expectation), it indicates that after a robust Q1 2011 performance, the rate of expansion in manufacturing has lost significant momentum in Q2 2011.
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