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Absa PMI Rises To 53 In February

2 March 2021 – The seasonally adjusted Absa Purchasing Managers’ Index (PMI) increased to 53 index points in February from 50.9 in the month before.

The increase was supported by three of the five subcomponents gaining relative to January, while only the employment index moved lower. The supplier deliveries index also ticked down but remained well above the neutral 50-point mark and, therefore, supported the headline figure, financial services provider Absa reported on March 1.

The most encouraging outcome of the February survey was a continued improvement in new sales orders. Following a rise in January, the index rose further to 54 index points, which is the best level since October 2020.

Absa said the improvement was supported by better export sales relative to the previous month, while the loosening of local lockdown restrictions likely also contributed to an uptick in domestic demand.

The improvement in orders supported an increase in the business activity index and, following four consecutive declines, the activity index rose by a sizeable 8.6 index points in February.

The PMI said the increase suggests that production growth reaccelerated after losing steam towards the end of last year. The inventories index also regained all of January’s losses and moved back above the neutral 50-point mark.

However, Absa noted that purchasing managers remain relatively optimistic about the six-month outlook, with the expectations index unchanged at 59.2 index points.

“A factor which may quell sentiment going forward could be continued upward pressure on costs. This, especially if the demand environment remains relatively weak and producers cannot pass on these costs to mitigate some pressure on profitability,” Absa said.

After a sharp increase the previous month, the purchasing price index rose further, and a hefty fuel price increase at the start of February likely contributed to the continued acceleration in cost pressure. Fuel prices are expected to rise further in coming months on the back of a higher Brent crude oil price, as well as an increase in fuel levies. A sharp hike in electricity tariffs will also push up costs.

Following four consecutive declines, the business activity index increased by a sizeable 8.6 points in February, which suggests that production growth reaccelerated after losing steam towards the end of last year.

The new sales orders index rose for a second consecutive month and reached the best level since October 2020. The improvement was supported by better export sales relative to the previous month, while the loosening of local lockdown restrictions likely also contributed to an uptick in domestic demand.

Following a somewhat surprising uptick in the previous month (as activity deteriorated in January), the employment index declined again in February. The average for the first two months of 2021 is more or less in line with the fourth quarter reading for 2020, during which the factory sector managed to add 28 000 formal jobs on a quarterly basis, although employment was still down by a sizeable 171 000 jobs from a year before.

The inventories index almost fully regained the previous month’s losses and rose back above the neutral 50-point mark in February.

Meanwhile, following a sharp increase in January, the supplier deliveries index declined by more than seven points to the lowest level since mid-2020.

Although the index remains high compared to its long-term history, Absa said the sizeable downward move suggests some improvement in the workings of the supply chain.

“This is because this subcomponent is inverted. If goods are less readily available and purchasing performance worsens, this is normally a sign of increased demand for manufactured products and actually lifts the index.”

However, other factors, such as lockdowns and production stoppages in the domestic economy or in trading partners, can also distort the supply chain and inadvertently lift the index. Source (Engineering News)