Despite slight dip, Absa PMI in expansionary territory, indicating rebound in manufacturing

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) edged down to 52.6 points in October, following an upbeat closing of the third quarter at 53.3 points in September.

Although this is a 0.7-point decrease between September and October,  it is encouraging to record the second consecutive reading above 50 points, which has not happened since a positive streak in late 2022 and early 2023.

The business activity index delivered another strong performance, increasing by 4.1 points to 55.6 in October, indicating improved production levels, a notable expansion in manufacturing activity and a sustained recovery in the manufacturing sector that has been plagued with significant volatility in recent months.

However, the new sales orders index decreased slightly by 1.4 points to 54.8 in October. It remained in expansionary territory and well above 50, signalling sustained demand in both domestic and export markets.

Local demand is expected to pick up pace as some benefits from the interest rate cut come through with a lag and other windfalls, in the form of lower inflation and a boost from withdrawals following the introduction of the two-pot retirement system, could further lift consumer spending, Absa says.

Further, supplier performance continued to improve as the inversed index decreased by 5.3 points to 48.7 in October. As new sales orders remained well above 50, this suggests that suppliers continue to perform and are coping with improving activity, or signals an improvement in port logistics. The trend needs to be sustained before firm conclusions can be drawn, it highlights.

The inventories index slightly decreased by 1.2 points to 54.6 points, but remained above the 50-point mark. It is good news that the purchased stock is in expansionary territory, as activity and supplier performance are improving. There is enough stock to ramp up production to meet the improvement in demand, Absa says.

However, despite the improvement in activity, manufacturers remain cautious with employment decisions. The employment index gained 0.5 points to 49.4 points compared to 48.9 points in September, stuck just below 50.

Despite a slight improvement, the employment index remains in contractionary territory. Sustained demand growth is needed to motivate job growth to meet increased production demands, the bank notes.

The index measuring expected business conditions in six months’ time fell to 62.7 from a very high level of 70.8 in September, but remains above the long-term average of 61.3.

Meanwhile, the PMI survey again showed that the inflation outlook is positive, with the purchasing price index decreasing to a low of 60 points, which is the lowest reading since early 2018.

The October figures benefited from fuel price cuts of 106c to 114c a litre at the start of the month, but a slight increase in fuel prices is expected next week, the bank says.