Absa PMI up slightly, but employment index drops sharply

The Absa Purchasing Managers’ Index (PMI), a key gauge of confidence in the manufacturing sector that often mirrors production trends, rose to 50 in October from 48.2 in September. The Transnet strike and persistent if slightly less intensive rolling blackouts capped any further gains, leaving the index precisely in neutral territory. 

“[A]s the intensity of load shedding was less severe compared to September, the business activity index did improve from the previous month. At 48.8 points, it still indicates weak output, but this was the best reading since March 2022,” Absa said. “It is a better start to Q4 than the Q3 average, which bodes well for actual manufacturing output in the final quarter of the year.” 

Worryingly, the employment index fell deeper into negative territory, suggesting that jobs are not on the manufacturing assembly line against the backdrop of an unemployment rate of over 33%.

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“Moving against the improvement in business activity, the employment index dropped sharply in October. The index fell to its lowest level in about two years,” Absa said. “Given the history of this series where sharp declines reverse in subsequent months, we need to be careful to not read too much into the drop. However, for now, this remains a worrying development.”  

Overall, at 50, the index is flashing neither red nor green lights, it’s just kind of muddling along. A more robust signal for the manufacturing sector at the start of this final quarter of 2022 would have been welcome. 

The jury remains out on whether the economy contracted in the third quarter after shrinking in the second, which would herald a recession. Another poor quarter to cap the year would put paid to the Treasury’s expectations of 1.9% growth this year.

And the Treasury’s forecasts are invariably optimistic. With global growth slowing, interest rates rising, and inflation still a concern, the manufacturing sector and the wider South African economy have little traction at the moment. Don’t be surprised if growth for 2022 fails to reach current official expectations. DM/BM