Kagiso PMI stable at 53.6 in May

The PMI is conducted on a monthly basis by the Bureau for Economic Research (BER) and the Chartered Institute of Purchasing and Supply.

An index level of below 50 represents contraction in the manufacturing sector‚ while a reading of more than 50 signifies expansion.

Abdul Davids‚ head of research at Kagiso Asset Management‚ pointed out that despite the largely unchanged headline reading‚ some significant numbers were seen within a number of the main PMI sub-components.

Notable was the 4.2 point rise in the employment index‚ which was now at 53.

"This is the first time since February 2011 that this index has risen above the 50 point mark to signal employment expansion in the manufacturing industry‚" Davids said.

This result might be a delayed reaction to the robust business activity levels seen thus far in 2012‚ Davids added.

He did however caution that the positive move in the employment index might not be sustainable in the coming months as some of the other major PMI sub-components were hinting at a slowdown in manufacturing sector growth.

The new sales orders index declined by 3.7 index points to reach 51.7 in May.

"This marks the third consecutive month that the index has declined by 3.5 or more points and reflects a rapid deterioration in demand for locally-produced goods‚" Davids said.

In addition‚ the business activity index declined to 56 after averaging at around 58 during the first quarter of 2012.

The price index rose by 2.5 index points to 73.6 after moderating for four consecutive months.

"This rise is mainly due to the weaker rand since April as the oil price‚ which posed the largest upside risk to input costs‚ declined significantly during the month‚" Davids explained.

The expected business conditions index saw a 2.8 index point rise to 59. Davids said it too might also have been driven by the weaker rand‚ which might have boosted manufacturers' expectations around the competitiveness of locally-produced goods on international markets.

The upbeat expectations were not supported by the PMI leading indicator‚ which is new sales orders as a ratio of inventories‚ which fell to its lowest level since early 2009.

"This means that inventories are too high relative to the demand for manufactured goods and suggests a possible further easing in headline PMI in the coming months‚" Davids warned.