1 October 2021

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) stabilised at an elevated level in September. This comes after large swings in the prior two months when several well-documented shocks pushed the PMI sharply lower in July, followed by a robust rebound in August. At 56.8, the headline PMI index declined somewhat in September from the 57.9 points recorded in August. Even with the decline, the September reading was only slightly lower than the average of 57.1 recorded in the second quarter of 2021. However, the average PMI reading for the third quarter was down by 4.4 points relative to 2021 Q2.

In terms of the follow-through to actual Q3 manufacturing production, the business activity subindex of the PMI is the more appropriate indicator to consider. In this case, the movement in September was starker. After crashing in July and rebounding significantly in August, this index declined by almost 5 points to 53.8 in September. In terms of the quarterly average, the business activity index measured 46.3 points in 2021Q3, down notably from just more than 55 in the second quarter. The weaker activity levels in 2021 Q3 are in line with the trend in the Absa quarterly manufacturing survey and suggests that the manufacturing sector is likely to be a drag on the quarterly GDP momentum in the third quarter.

The new sales orders index also lost ground in September, albeit less so than the activity component. Indeed, at 59.2, new sales orders remained elevated. There seems to have been some softening in export demand, which would be consistent with the recent cooling in the PMI indicators for the Eurozone and the UK. Even so, respondents continue to expect an improvement in overall business conditions over the next six months.

After softening in July, the purchasing price index increased for the second consecutive month in September. Along with supplier delivery times that lengthened again in September, the rise in input costs may reflect the impact of worsening global supply-side bottlenecks. Looking forward, besides the cost implication of supply and shipping constraints, the much weaker rand exchange rate in the latter part of September and the recent (further) rise in the Brent crude oil price should keep input cost pressures elevated in the foreseeable future.