The seasonally adjusted Absa Purchasing Managers’ Index (PMI) declined further to 50.3 index points in December 2020, down from 52.6 in November. This is the lowest level since July 2020. The reading just above 50 index points suggests that growth is levelling off in the manufacturing sector after solid month-on-month gains were recorded in the wake of April’s lockdown-induced plunge in activity. Indeed, despite a strong start in October, the average reading for the fourth quarter is basically unchanged from the third quarter. This suggest that while another quarter-on-quarter uptick in manufacturing output is likely, the pace of the recovery momentum has slowed.
Worryingly, the business activity index declined to 44.9 index points in December. Strictly speaking this means that manufacturing output declined compared to the previous month. Furthermore, after already slumping below the neutral 50-point level in the previous month, new sales orders fell further in December. The index declined to 45.2 in December, compared to an average of 53.7 points for the full fourth quarter and a solid 62.5 average recorded in the third quarter. As was the case in November, a deterioration in export orders seems to have contributed to the decline in overall orders. However, in early 2021, the COVID-19 second wave and accompanying renewed lockdown restrictions will likely also negatively impact domestic demand, particularly from the liquor and hospitality sectors. The return of load shedding, especially if no longer contained to the late evenings, also argues against a strong rebound in January. The index tracking expectations for business conditions in six months’ time was largely unchanged from November at 52.9 points compared to readings well above 60 just three months ago.
In addition to the below-50 readings of the activity and orders indices, the employment index was the biggest drag on the headline PMI in December. The index fell to 43.8 points from 47.2 in November. As was the case in the previous few months, the inventories and supplier deliveries indices added positively to the headline figure. There was also some good news on the price front, with the purchasing price index moving lower for a second consecutive month. The index, which tracks the changes in input costs for manufacturers, declined to the lowest level since February 2020