August PMI declines in October

In the month of October, the manufacturing activity in South Africa faced significant challenges due to a three-week strike in the steel and engineering sector and intermittent power cuts. The Absa Purchasing Managers Index (PMI) dropped to 53.7 points, indicating a decline for the second consecutive month. While the PMI is still in expansionary territory, the underlying data reveals the impact of supply side shocks on the sector. Miyelani Maluleke, an economist at Absa Corporate & Investment Banking, highlighted that the business activity index, a proxy for production, witnessed a notable decline from 49.9 to 46.1, reflecting a decrease in manufacturing output. Despite the challenges, the sector managed to remain in expansion, supported by certain sub-sectors that saw growth. The level one lockdown restrictions enabled increased economic activity and mobility in parts of the manufacturing sector that have strong ties to sectors reliant on higher mobility. However, the new sales orders index took a hit in October, indicating a potential slowdown in demand conditions. Maluleke noted that manufacturers reported a decline not only in domestic demand but also in export demand, raising concerns about sustained improvements in the sector. Supply chain disruptions, exacerbated by the ongoing pandemic, continue to impact the manufacturing sector in South Africa. The supplier performance index for October, although showing a slight improvement, remains significantly higher than the long-term average. This suggests that supply chain bottlenecks, influenced by both the strike in the steel and engineering sector and global disruptions, are still prevalent across various sub-sectors reliant on imported raw materials. The resilience of the manufacturing sector in South Africa in the face of these challenges will depend on how effectively these supply side shocks and demand conditions are managed in the coming months.