Absa Purchasing Managers’ Index (PMI) rose to 58.6 points in February 2022

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) rose to 58.6 index points in February 2022, following a three-point rise to 57.1 in January. The improvement was driven by increases in all five subcomponents making up the headline PMI, suggesting that the manufacturing sector continued to fare well during the second month of the year. 

Respondents noted the quickest increase in new sales orders since the second quarter of 2021. This was likely, to a large extent, driven by an improvement in exports, which rose further from an already upbeat January reading. Better demand supported a further rise in production volumes, with the output index ticking up to a healthy 59.6 points in February. This was despite a bout of load-shedding at the start of the month. The average level for the first two months of the year is well above the final quarter of 2021 which bodes well for a continued recovery in manufacturing output following the slump in 2021Q3. Various shocks in July 2021 had set back the rebound from the 2020 crash, with overall production levels still not back at pre-pandemic levels by the end of last year. An encouraging outcome of the February PMI survey was the employment index edging back up above 50 points. Recent relatively better readings for this index suggests that employment levels may be stabilising after the sector has been bleeding jobs for several years (pre-dating the Covid-19 shock).  

Purchasing managers remained upbeat about expected business conditions in six months’ time. The index declined marginally to 69.5 index points from an almost four-year high of 71.3 reached the month before. One factor that has the potential to sour sentiment going forward is a possible further increase in input costs. This is especially the case given an environment where demand is still recovering, which means that not all cost increases can be pushed on to consumers through price increases. In February, the purchasing price index climbed by a point to a high 89.8, which is already almost 5 points above the average recorded in 2021. Looking ahead, a surge in the Brent crude oil price means that the fuel price will again increase sharply this week, with inputs from the petrochemicals value chain also more expensive. The risk is that the oil price remains high(er). This, or a sudden weakening of the rand exchange rate, also has the potential to lift freight costs even higher, which some respondents already flag as a key concern. Renewed disruptions in the workings of global supply chains amid an escalation of the Ukrainian conflict will not only have cost implications, but could also negatively impact sentiment.