The monthly Kagiso PMI is a leading indicator of activity in the manufacturing sector‚ where a level below 50 suggests a contraction in activity while that above 50 points to expansion.
Its sponsor‚ Kagiso Asset Management‚ said the index had now been above the key 50-point mark for three consecutive months.
Kagiso research head Abdul Davids said there was a modest improvement across all the major sub-indices - except for the employment sub-index‚ which continued to decline.
The business activity index regained all of May's losses to reach 52.2 points in June.
Davids pointed out‚ however‚ that while the improvement was positive‚ the level of the index suggested production remained under pressure.
The new sales orders index increased notably‚ rising 2.9 points to 54.0 in June‚ indicating that demand for manufactured goods improved.
Davids believes tentative indications of an improvement in the US economy may have contributed to the increased demand for manufactured goods.
"Nevertheless‚ a sustained recovery in demand hinges on an improvement in domestic demand and better gross domestic product growth prospects in the EU and US economies‚" he said.
Following the high levels of stock disposals in April‚ the inventory index continued to improve in June‚ increasing to 55.0.
Kagiso says, however‚ manufacturers appeared to be cautious about building inventories too quickly as global and local economic conditions remained uncertain.
The price index remained largely unchanged‚ declining by a mere 0.2 points to 82.2 in June.
It says this relatively high level indicated that manufacturers faced sustained input cost pressure.
A significantly weaker rand may have contributed to high input costs in the month. "With the rand trading above R10/US$ for most of the month‚ imported materials used in the manufacturing process were more expensive‚" Davids said.
"While the latest PMI results show that conditions improved marginally‚ the outlook for the sector is expected to remain challenging in an environment of muted demand and relatively high input prices‚" he said.
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