PMI up for sixth straight month

The Kagiso Purchasing Managers Index (PMI) - which measures manufacturing activity - entered 2010 with a bang.

The index increased for the sixth month in a row to 53.6 index points during January from 52.5 in December 2009, Kagiso said on Monday.

At its low of 36.1 points in April 2009, the PMI had fallen by 26.7 index points from the February 2007 peak of 62.8.

"The January 2010 reading means that the PMI has already recovered by 17.5 index points from the trough," said Andre Coetzee, head of fixed income at Kagiso Securities.

January was the sixth consecutive month that the PMI increased and also represented the third month in a row above the important 50 mark that divided manufacturing expansion from contraction.

"Four of the five PMI sub-components rose during January with the employment index leading the gains, posting a 3.7 point rise to breach the 50 level for the first time since April 2008," Coetzee said.

"Although one should not get too excited about a single month's data, the level of the index suggests an improved outlook for factory job creation at the start of 2010."

With Statistics SA's latest retail sales data showing that consumer demand remained in the doldrums at the end of 2009, the fact that the PMI new sales orders index rose by another 0.7 points to 55.4 in January hopefully signalled an improvement in domestic demand in early 2010.

"Manufacturers seem to be reacting to these more positive trends with output levels, measured according to the business activity index, gaining 1.1 index points to 56.2 in January," Coetzee said.

The supplier performance index rose marginally to 49.2 points while the inventory index was the only sub-component to register a decline in January, falling by 3.8 points to 51.8, but still indicating that purchasing managers were acquiring stock - perhaps in anticipation of continued improved demand conditions.

"Another positive development is that purchasing managers expect the factory revival to be sustained," Coetzee said.

The expected business conditions index soared to 73.3 points in January to reach a level last seen in mid-2005.

"The positive outlook corroborates other recent data releases, in particular the further gain registered in the SA Reserve Bank's leading economic indicator towards the end of 2009," Coetzee said.