SENTIMENT in the manufacturing sector in South Africa has improved regarding business conditions and sales after activity rose for the second month in a row in May.
The S&P Global South Africa Purchasing Managers’ Index (PMI) ticked up to 50.4 in May 2024 from 50.3 in April, indicating the second straight month of a slight improvement in the country’s private sector, driven by capacity-building efforts.
Although indicating only a slight overall upturn, the index marked the first back-to-back improvement in private sector business conditions since the end of 2022.
S&P said there were additional signs of a stabilisation in demand conditions during May as new order volumes almost stabilised, while growing confidence of a forthcoming uplift in demand led firms to raise their stocks at the fastest rate in over nine years.
Jobs growth also quickened, and delivery delays remained modest.
However, S&P said there were some reports that the election had led to reduced business activity and a pause in client spending decisions.
David Owen, Senior Economist at S&P Global Market Intelligence, said: the PMI managed to retain its above-50 reading in May for the first time since December 2022.
Owen said though the index indicated only a marginal improvement in operating conditions, it nonetheless offered further signs that the private sector economy was recovering.
“Improving business conditions were mainly due to capacity building efforts in May. Input stocks and employment grew at faster rates, with the former rising to the greatest degree since March 2015,” Owen said.
“Firms appeared to prioritise building stocks in anticipation that sales would start to recover, particularly as other economic drivers such as supply chain conditions and load shedding are also stabilising.
“Although sales and output remained in decline, this was partly due to the elections, which resulted in a pause in customer spending decisions and reductions in activity at some companies. Many firms were confident that demand will start to pick up after the elections have concluded, boosting growth projections to their highest in three months.”
Meanwhile, the level of sentiment towards the one-year outlook strengthened to the highest level since February, as nearly half of all survey respondents (47%) predicted output to grow. Businesses raised their staffing levels midway through the second quarter, extending the run of job creation to four months.
Furthermore, the rate of growth was the sharpest since September 2022.
S&P said despite higher workforce capacity, levels of outstanding business rose for the first time in three months amid some panel member reports of material shortages.
On the price front, the latest survey data signalled another sharp increase in input costs in May, one that broadly matched the trend seen over 2024 so far.
Rises in supplier charges, commodity prices and transport costs drove purchase prices higher, according to firms, while wages continued to increase strongly amid cost-of-living pressures.
Overall selling prices also rose sharply over the latest survey month, with the rate of inflation holding close to April's six-month high. Increased charges reflected efforts to protect margins in the wake of growing costs.
BUSINESS REPORT