HomeNewsPMI edges up but still below break-even

PMI edges up but still below break-even

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South Africa’s purchasing managers’ index (PMI) edged up slightly in October, but stayed below its break-even point in a sign the manufacturing sector is still sickly, making another interest rate cut possible.

The PMI, a key indicator of industrial activity ahead of official data, crept up to a seasonally-adjusted 49,8 in October from a slightly upwardly revised 48,6 in September, sponsor Kagiso Securities said.

“While still below 50, the gain in October suggests that the weak readings during August and September may at least partially have been the result of temporary (strike-related) factors,” said Kagiso Securities director Theo Vorster.

Latest data from Statistics South Africa shows annual growth in manufacturing, which accounts for about 15% of GDP, slowed unexpectedly to 5,3% August as strikes in the sector took their toll.

The sector is also under threat from a strong rand, which has gained more than 27% against the dollar since the start of last year as foreign investors have piled into local assets.

The rand was last at 6,9540 against the dollar on Monday, compared with 6,9590 just before the PMI release at 0900 GMT.

However, Kagiso said the October PMI data showed a slight recovery from September, with major components all posting gains except for employment, which declined further below 50.

Another positive development was that purchasing managers were more upbeat about the future with the expected business conditions index rising above 60 index points for the first time since May 2010.

Stats SA releases official September manufacturing output numbers on November 11.

Another weak print after the August slowdown, combined with data last week showing a brake in inflation, could persuade the Reserve Bank to cut rates again at its last policy meeting for the year on Nov 17/18.

The Reserve Bank has trimmed the repo rate by a cumulative 600 basis points to 6,0% since December 2008, on a benign inflation outlook and also to boost the domestic economy, which late last year came out of its first recession in nearly two decades due to depressed local and global demand.

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