The seasonally adjusted Absa Purchasing Managers’ Index (PMI) rose for a third month to reach 53.1 index points in December 2022, slightly up from 52.6 in November.
While the headline number is positive, the underlying picture is more mixed.
Most concerning was the business activity index which deteriorated further in December. This is indicative of weak underlying momentum in the sector. Sustained and intense load-shedding during the last month of 2022 was likely a key drag on the sector.
More encouraging was the sustained demand growth signalled by the new sales orders index. The index ticked down slightly from November but remained firmly above the 50-point mark for a second month. A further positive development was a rise in the expected business conditions index.
Purchasing managers turned more optimistic about business conditions in six months, with the index rising to 54.9 in December from 51.7 in November. The expectation that the peak in cost pressure is, for now, behind manufacturers may have underpinned the more optimistic outlook. Indeed, the purchasing price index declined to its lowest level since late 2019 and is now even well below its long-term average reading.
The, on average, significantly lower Brent crude oil price and slightly stronger rand exchange rate relative to November likely drove the alleviation of cost pressure. The steep downturn in the PMI price index at the end of the year bodes well for a further moderation in actual producer price inflation in the first months of 2023.
Somewhat worrying was the renewed uptick in the supplier deliveries index. With new sales orders dipping somewhat (although remaining in positive terrain), this could point to renewed friction in supply chains rather than strong demand causing a lengthening in delivery times. This is because the index is inverted, so slower deliveries (often caused by higher demand for goods) cause the index to increase.
There is a likelihood of further near-term global supply chain disruptions stemming from the rapid reopening of the Chinese economy that has resulted in surging COVID-19 infections.