South Africa’s Barclays Purchasing Managers Index fell sharply by 2.6 index points to 45.9 index points - the lowest since January and well below the neutral 50-point mark

The seasonally adjusted Barclays Purchasing Managers’ Index (PMI) fell by 2.6 index points to 45.9  index points in October from a downwardly revised 48.5 points in September. The October reading is the lowest since January and well below the neutral 50-point mark.  This suggests that the manufacturing sector is experiencing an extremely lackluster start to Q4 2016 with four of the five sub-components of the PMI declining m/m.

Looking at the sub-components of the index, The new sales order index fell 2.8 points to 44.5 in October.  The business activity index and employment index also deteriorated to 43.5 and 45.1 respectively, also below the neutral 50-point mark. The inventories index at 47.2 lost ground and remains below neutral. The Purchasing Commitments index declined from 51.5 in September to 46.7 in October losing most of the previous month’s gain. Unfortunately, manufacturers’ sentiment towards future business conditions turned notably pessimistic.  After three months of increases, the index fell by a massive 13.2 points to 50.6.  The price index remained more or less unchanged at a low level in October (59.4 from 59.7) which may have been supported by a strengthening rand exchange rate during October. 

Overall, the latest PMI leading indicator can be considered especially weak, suggesting that inventories outstrip sales orders which usually doesn’t bode well for production growth.  Since global economic prospects are looking a little better, the weakness could reflect ongoing concerns about SA’s politics, the possible credit rating downgrade at the end of the year as well as the #FeesMustFall protests. In addition, the lack of recovery in domestic demand also probably weighed on expectations in the manufacturing sector.

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