Turning point for employment in South Africa
The seasonally adjusted Absa Purchasing Managers’ Index (PMI) for October shows that employment prospects in the country are slowly edging into positive territory, with businesses sitting on the edge of a turning point for hiring decisions.
The PMI was down 0.7 percentage points to 52.6 in October, although the Bureau for Economic Research (BER) said caution should be exercised when interpreting this as being too negative.
“It means that the sector expanded this month compared to last month,” the economists said, noting that it is also the second consecutive month with the index above 50 print.
“This has not happened since a positive streak in late 2022 and early 2023.”
The PMI is based on a survey of a representative group of purchasing managers in the South African manufacturing sector.
These purchasing managers indicate each month whether a particular activity (e.g. new sales orders and hiring) for their company has increased, decreased or remained unchanged.
An index value of 50 indicates no change in the activity, a value above 50 indicates increased activity and a value below 50 indicates decreased activity.
Looking at the breakdown of the specific indices, the business activity index increased by 4.1 points to 55.6 in October.
Again, while the new sales orders index slightly decreased by 1.4 points to 54.8 in October, it stayed well above 50, signalling a sustained expansion in demand.
“While export sales slowed, it remained in expansionary territory. Local demand is expected to pick up pace as some benefits from the interest rate cut come through with a lag and other windfalls in the form of lower inflation,” the BER said.
The boost from withdrawals following the introduction of the two-pot retirement system could further lift consumer spending.
New sales orders remained well above 50, suggesting that suppliers continue to perform and are coping with improving activity.
Employment
Despite the improvement in activity, manufacturers remain cautious with employment decisions, the BER noted.
The employment index gained 0.5 points compared to last month but was stuck just below 50, indicating that activity is still down.
However, the index has been edging up over the last three months, starting at 43.4 in August and sitting at 49.4 in October, on the cusp of a turning point.
“Sustained demand growth is needed to boost production, leading to increased employment over time,” the BER said.
Businesses are still optimistic that operating conditions will improve, although this optimism has waned relative to last month.
The index measuring expected business conditions in six months’s time fell from 70.8 in September to 62.7, but it remains above the long-term average of 61.3.
The PMI survey again showed that the inflation outlook is positive, with the purchasing price index decreasing to a low of 60 points, the lowest reading since early 2018.
October benefitted from fuel price cuts of 106 to 114 cents at the start of the month, but a slight increase in fuel prices is expected next week.
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