December PMI lower, but above neutral 50-point mark

JANUARY 14, 2015

The seasonally adjusted Kagiso Purchasing Managers Index (PMI) ended 2014 marginally above the neutral 50-point mark, at 50.2 – a 3.3 point decline in December, data released on Wednesday showed.

During the second and third quarters of 2014, the PMI languished below 50, but the average reading for the fourth quarter came in at 51.2 index points compared with an average of 48.2 for the first nine months of last year.

Best quarter of 2014

Kagiso Asset Management research head Abdul Davids on Wednesday said that the December index confirmed earlier expectations that the final quarter of the year would likely be the best quarter of 2014 for actual quarter-on-quarter manufacturing production growth.

He, however, said that the two biggest-weighted subcomponents of the headline PMI - the business activity index and the new sales order index, declined in December.

After rising substantially in November, the business activity index dropped by a “hefty” 7.7 points, which brought the indicator back below the neutral 50-point mark.

“This suggests that output is failing to gain traction despite a normalisation of domestic demand conditions after protracted strikes in the platinum and steel manufacturing sectors earlier in 2014,” Davids asserted.

Decline surprising

He described the magnitude of the decline as “surprising” but noted that it was possibly owing to electricity load shedding and mandatory cutbacks by large industrial users of electricity supplied by utility Eskom.

The new sales orders index, meanwhile, fell to 52.6 in December from 55 index points in November.

Davids noted that the global environment was not supportive of strong external demand, reflected in the December Eurozone manufacturing PMI, which remained subdued at 50.6 index points.

In China, readings confirmed the fragility of demand as the official PMI estimate slipped to 50.1.

“As expected, the price index moderated for a third consecutive month, falling to its lowest level since July 2012 and suggesting a significant slowdown in the rate of input cost increases.

“This moderation was mainly owing to the sharp drop in the international oil price,” he outlined.

Encouragingly, the index measuring expected business conditions in six months’ time recovered from a slump in November, and the PMI leading indicator edged above one for the first time in 2014, suggesting an acceleration in production going forward as new sales marginally outstripped current inventories.