The seasonally adjusted Absa Purchasing Managers’ Index (PMI) ticked up to 52.1 points in August from 47.6 in the prior month.
The business activity index rose back above the neutral 50-point mark for the first time since March. Since then, output was hampered by the flooding in KwaZulu-Natal and significant electricity supply disruptions.
New sales orders continued to decline in August, but at a slower rate than before. Domestic demand is likely continuing to benefit from the reopening effect, while some respondents also mentioned the return of production at Toyota’s flood-affected factory as supporting demand across the value chain.
At the same time, the latest global PMI data suggests that external demand is weakening. Indeed, the SA PMI export sales indicator was stuck in negative terrain for a second month.
On a positive note, the purchasing price index declined for a second consecutive month and is now at the lowest level since mid-2021. Importantly, this means that the rate of increase in costs is slowing, not that those prices are declining.
That said, the steep fall in the fuel price at the start of August likely helped with alleviating overall cost pressures, with a further notable decline in the fuel price expected next week. While headline producer price inflation (PPI) for final manufactured goods remains very high, the PMI suggests that cost pressure at the start of the pipeline has moderated.
Another encouraging improvement was the increase in the expected business conditions index to 57.9 from 49.4 in July. This may reflect optimism from purchasing managers that cost pressures will continue to abate over the next six months, while the energy reform measures announced late last month (and thus not fully captured in the July survey) may have also lifted sentiment about the outlook.