By André Coetzee, Kagiso Securities.

The seasonally adjusted Kagiso  PMI  improved slightly in May,  posting an increase to  37.3 index points œ the first rise  since  January 2009. The average PMI for the first two months of 2009Q2 is 36.5 versus a Q1 average of 38.6.

Steady  increases  (albeit  from  very  depressed  levels)  in  the  output  volume  and  new  sales  orders  indices  over  the  past  two  months suggest  that  the  decline  in  manufacturing  output  may  be  stabilizing  from  the  sharp  falls  posted  earlier  this  year  œ  the  seasonally adjusted business activity and new sales orders indices rose to 35.1 and 35.7 respectively.

Indicators of capacity utilization and near-term demand also improved somewhat from April’s record lows, but current levels indicate that  activity  in  the  manufacturing  sector  is  still  contracting,  albeit  at  a  more  moderate  rate.  The  seasonally  adjusted  inventories index increased to  35.4 points but the  purchasing commitments index  failed to  respond,  staying almost constant at a very  low  29.6 points.

On  a  more  upbeat  note,  the  PMI  price  index  dropped  below  50  (to  45.6)  for  the  first  time  since  2004,  raising  the  prospect  that producer  price  inflation  (as  measured  by  Stats  SA)  could  move  into  deflationary  territory  in  the  foreseeable  future.  Meanwhile, for the first time since September 2008 a majority of purchasing managers expect business conditions to improve in 6 months’ time.

 kagiso

 Source: Kagiso Securities, June 1, 2009.

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