In January 2012, SA manufacturing production rose by a reasonable 1.7%m/m (seasonally adjusted), compared with a revised decrease of 1.5%m/m in December 2011. The January reading was below market expectations, which was for a rise of 2.2%m/m; although the consensus forecast was based on a very small sample survey. In the past three months (November 2011 to January 2012), production has risen by 0.4%q/q, seasonally adjusted. On an annual basis, production was up 2.4%y/y, unchanged compared with December 2011.
Unfortunately, both the monthly as well as the annual rate of change in manufacturing activity has been extremely volatile for a considerable period, with a substantial divergence in performance at sector or industry level. Part of this volatility relates to industrial action, increased maintenance work and public holidays.
It is perhaps useful to look at the trend cycle index for manufacturing (see chart attached), which clearly shows that although SA manufacturing has improved relative to the 2008/2009 severe recession, it has not fully recovered and activity levels remain well below the previous peak.
The performance of manufacturing has certainly not kept pace with the recovery in the retail sector. Instead it has been negatively impacted by a range of factors including higher import demand (helped by the strong currency), a relatively poor performance in the domestic mining and agricultural sectors, a slump in construction activity as well as a general lack of fixed investment spending.
For 2010 as a whole SA manufacturing activity grew by 5.0%y/y, which was obviously a vast improvement on the 13.4%y/y decline recorded in 2009. In 2011, however, production averaged a more modest rise of only 2.6%, with the sector experiencing significant disruptions due to strike activity.
More positively, the Kagiso PMI has moved noticeably higher in the past two months, which could reflect a general rise in manufacturing activity as well as future sales. In addition, the level of business confidence (released yesterday) has risen back above the 50 index level, to 52.0. This is the highest level of business confidence recorded in the past year. Hopefully, this improvement is supported by an improved agricultural season during 2012 (which appears likely), less labour disruptions in the mining industry, ongoing expansion of SA business activity into southern Africa, increased infrastructural investment activity and a steady improvement in world economic conditions.
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