Standard Bank Research Team
Standard Bank
Activity index improves, prices fall
As expected, the PMI rose in November. The index gained 3.2pt and increased to 53.3, versus market expectations of a 1.5pt increase. The biggest contributors were business activity (+5.7pts to 56), new sales orders (up 4.8pts to 55) and backlog of sales orders (up 8.4pts to 48). Global commodity deflation, specifically with respect to the oil price, contributed to the 8.2pt drop in the prices index, to 67.8. A further sign of health in the manufacturing sector was a 0.1pt fall in inventories, to 56.2 and rise in employment by 2.1pts to 48.2. The expected conditions index continues to move in the opposite direction from that of actual activity and new orders, and fell 9.7pts to 50.7 (fig 2).
The PMI has risen 3.8pts since the end of Q3 and we expect it will continue to improve, signalling a post-strike recovery in manufacturing and mining. We saw the start of an improvement in these sectors in September’s data, which came in above consensus expectations making up for lost production in the first eight months of the year (fig 1).
Upward momentum in the PMI is evident from the 3mma of the index, which rose 1.8pts to 51.0 (fig 2). This is the first time this measure of PMI has been above 50 since March this year. The leading PMI indicator (new orders minus inventories) which pre-empts PMI by three months, also improved, from -6.0 to -1.2, indicating PMI at above 50 in Q4:14. This implies the recovery in the manufacturing sector should continue into Q1:15 (fig 3). The recovery may moderate as inventories rebuild.
Global disinflation has countered the effect of a weaker USDZAR exchange rate, resulting in SA’s PPI for October moderating further, to 6.7% y/y from 6.9% y/y in September. This will reflect more sustainably in the prices component of the PMI, which has been rising since May 2014; and fell for the first time in October. Weaker oil prices are also likely to support SA’s terms of trade, although the general decline in commodity prices should offset much of the upside from cheaper oil.
The PMI data confirms earlier signs of GDP growth rebalancing in Q4:14, to the benefit of the trade balance. It will be interesting to see the net effect of lower oil prices globally on world trade volumes, as consumers’ real disposable incomes rise and producers’ costs fall.
Looking at international manufacturing PMIs (fig 8), the picture remains mixed. Apart from the US, manufacturing sectors have been struggling; particularly in China, Japan and the Eurozone.
According to the latest Chinese manufacturing PMI, the country’s manufacturing sector has struggled to gain traction since the start of 2011, with the PMI index bouncing around the 50 level for the past 3 years. Today’s data confirms that manufacturing remains under pressure, with the PMI coming in at 50.3 pts in November, from 50.8 pts in October.
India’s PMI also rose in November, to 53.3 from 51.6 and the prices component is also indicative of benign inflation pressures.
The Eurozone PMI fell to 50.0 in November, from 50.6 pts in October.
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