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PMI signals contraction in South African private sector in July

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Staff Writer | August 6, 2018
The start of the third quarter saw the health of the South African private sector deteriorate, as signalled by latest survey data from Standard Bank and IHS Markit.
South African
Africa   Companies reduced their workforce numbers
Contributing to the overall decline were contractions in output and new orders, with firms often commenting on weaker demand and widespread strikes.

Furthermore, companies reduced their workforce numbers amid efforts to lower costs and bring staffing levels more in line with demand.

Purchasing activity also fell, which contributed to a reduction in stock levels.

Inflationary pressures continued meanwhile, albeit softening slightly since June.

Survey evidence suggested that rising output prices were the result of higher cost burdens, with input price inflation remaining solid.

The headline Standard Bank PMI is a composite singlefigure indicator of changes in private sector business conditions.

It is derived from indicators for new orders, output, employment, suppliers’ delivery times and stocks of purchases.

Any figure greater than 50.0 indicates overall improvement in conditions.

The headline PMI fell from 50.9 in June to 49.3 during July, signalling an overall decline in business conditions in the South African private sector.

However, the extent to which the health of the sector deteriorated was only marginal.

Contributing to the overall contraction was a fall in output during July.

Firms noted that weaker demand was a key factor driving the decline, though a number also mentioned that product shortages and strikes hindered business activity.

Companies also reported a decline in the volume of new orders from both domestic and foreign sources, with anecdotal evidence linking this to a contraction in the customer base.

That said, the pace of decrease was only modest.

Amid the decline in new orders, firms contracted their workforce numbers during July.

The fall in staffing levels was linked by panel members to a period of retrenchment.

Purchasing activity meanwhile slipped into contraction territory at the start of the third quarter as new orders fell.

As a result, stock levels declined, though to a lesser extent than in the previous month.

Elsewhere, rising fuel and commodity prices underpinned an increase in purchase costs which, along with higher average staff pay, led to a rise in overall input prices.

That said, the overall rate of cost inflation eased since June.

Firms meanwhile continued to pass on higher cost burdens, with output prices increasing from the previous month.

However, in line with the trend in input costs, charges rose to a lesser extent than in June.