03 August 2015

The seasonally adjusted Barclays Purchasing Managers’ Index (PMI) remained unchanged at 51.4 index points in July. The flat reading follows a strong gain (albeit from very depressed levels) in May and a further rise in June.

The major subcategories of the PMI put in a mixed performance during July. On a positive note, the seasonally adjusted business activity and inventories indices posted further gains. At 53.2 index points, the business activity index reached the best level since January 2015.

Of the key PMI subcomponents, the inventories index recorded the biggest gain in July. The index rose by 3.4 points to 60.2. There was also some good news on the input cost front. The PMI price index declined by 2.1 points to 75. The easing in cost pressures may already reflect the impact of lower commodity prices, including the renewed decline in the Brent crude oil price.

Not all good news

Unfortunately, it was not all good news. The new sales orders index declined by 1.9 index points and fell back below the 50 threshold. This may provide further evidence of the general demand weakness in the domestic economy. The employment index remained stuck well below the 50 level. The index lost almost 2 points to 46.9.

Somewhat surprisingly, purchasing managers remained optimistic about the future. The index measuring expected business conditions in six months gained 1.2 points to 63.2. It could be that the sustained weakening trend of the rand exchange rate and improved news flow on the Greek debt crisis buoyed sentiment.

The PMI leading indicator is not nearly as upbeat. The indicator looks at the ratio between new sales orders and inventors. A number above 1 suggests that demand is outstripping the level of inventories and below 1 vice versa. The leading indicator declined further to 0.8 in July, which does not bode well for manufacturing production going forward.