The seasonally adjusted Barclays Purchasing Managers’ Index (PMI) rose by 3.2 points to reach 49.5 index points in September. The September reading, as well as the average for the third quarter, are below the neutral 50-point mark. In fact, the average reading in the third quarter is well below the second quarter average. This suggests a slowdown in actual quarter-on-quarter manufacturing production growth after a solid performance in the second quarter.

Four out of the five main PMI subcomponents increased in September. Nonetheless, only the business activity and suppliers’ performance indices came in above 50 points. The new sales orders index continued to point to subdued demand. In contrast, the inventories index ticked higher in September and edged back above the level of the new sales orders index. This means that the PMI leading indicator is below one, which does not bode well for output growth going forward. The employment index declined in September and fell below 50 for the first time since June.

On a positive note, the index tracking expected business conditions in six months’ time increased notably to 63.8 points. This was the third straight increase and the index is now at the highest level since the start of 2015. The more upbeat sentiment could be driven by less pressure on costs. Indeed, the price index fell for a third straight month to the lowest level in almost six years.

This is likely driven by the rand exchange rate remaining relatively firm from August to September and two consecutive months of declining fuel prices. In addition, despite of the slightly stronger rand exchange rate of late, respondents still reported higher export orders. On the domestic front, some manufacturers may benefit from an expected turnaround in the agriculture sector as the impact of the drought diminishes.