South African PMI Drops, Signaling Factory Contraction

South Africa’s purchasing managers’ index dropped below 50 in March, signaling that factory output may have shrunk, Kagiso Tiso Holdings said.

The seasonally adjusted index fell for the first time in three months to 49.3 from 53.6 in February, Johannesburg-based Kagiso said in an e-mailed statement today. The Bureau for Economic Research, based at the University of Stellenbosch near Cape Town, conducts the PMI survey for Kagiso.

“This pullback was largely driven by significant declines in the new sales orders,” Abdul Davids, the head of research at Kagiso Asset Management, said in the statement. The rebound in February was short-lived and “in light of slowing domestic consumer spending and the prolonged recession in Europe, the current level of new sales orders is probably more realistic.”

Manufacturing, which makes up about 15 percent of the economy, has come under pressure as mining strikes last year and a slump in demand from Europe curbed exports. The Reserve Bank has held its benchmark interest rate at 5 percent, the lowest level in more than 30 years, since July to support consumer spending.

Overall spending in the economy shrank 0.9 percent in the last three months of the year, the first contraction since 2009, the central bank said on March 12. Growth in consumer expenditure, which accounts for about 60 percent of total spending, slowed to 2.4 percent from 2.7 percent in the previous three months.

The sub-index measuring business activity fell 4.5 points to 47.7, while the new sales orders index declined 8.2 points to 52, Kagiso said. The employment index dropped 3.1 points to 42.6, indicating manufacturers shed jobs, it said.

The rand’s 7.8 percent decline against the dollar this year, the worst of the 16 major currencies tracked by Bloomberg, has boosted import costs, adding to pressure on inflation. The price sub-index rose 1.3 points to 87.3, Kagiso said.

“This sustained weakening of the rand is placing significant upward pressure on input costs,” Davids said.

The rand gained 0.1 percent to 9.1873 per dollar at 9:41 a.m. in Johannesburg today.

To contact the reporter on this story: Andres R. Martinez in Johannesburg at amartinez28@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net

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