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Manufacturing sector taking strain - Investec

By unknown | Jun 03, 2008 | COMMENTS [ 0 ]

Lihle Z Mtshali

Lihle Z Mtshali

After holding up at 54,1 in April, the seasonally adjusted purchasing managers' index (PMI) dropped five index points to 49,1 last month.

Sponsor Investec said yesterday the index, which is an indicator of the economic health of the manufacturing sector, was pressured by weak sales orders and higher production costs.

A reading under 50 represents a contraction of the manufacturing sector, while over 50 indicates expansion.

Johan Botha, a senior economist at Standard Bank, said the figure was not a surprise as it was in line with other sectors in the economy. He said: "The sector is clearly struggling, as are other sectors. April's PMI was actually a bit of a surprise.

"The sector may benefit from the weaker rand in terms of exports, but even that may not be enough to get our heads above water."

Investec said the manufacturing sector had felt the impact of significant increases in input costs, as shown in the producer price index for April, which rose to 12,4percent year-on-year from 11,9percent in March.

Manufacturing employment growth also remained sluggish, said Investec.

"Electricity constraints and a moderation in demand are likely to maintain downward pressure on employment," said Andre Roux, head of fixed income at Investec Asset Management.

But Roux said the weak first quarter showing may be followed by a firmer second quarter as the sector made up for lost production. - With Reuters


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