PMI – “less bad”

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The  seasonally  adjusted  Kagiso  PMI  for  June  increased  slightly  for  the  second  consecutive  month  to  37.9  points  from  37.3  during  May, confirming a bottoming out of the index in May.

The slowing in the contraction of output volumes continued with both the seasonally adjusted business activity and seasonally adjusted new sales orders indices increasing from 35.1 and 35.7 to 37.9 and 38.2 points respectively.

May’s  inventory  turnaround  was  not  sustained  œ  the  seasonally  adjusted  inventories index dropped from 35.4 to 29.1. In contrast, purchasing commitments posted a slight increase from 29.6 to 31.1 index points. The erratic behaviour of these indicators may reflect high levels of uncertainty amongst purchasing managers regarding future demand prospects, while the low index levels remain consistent with a contracting manufacturing sector.

In contrast to the weak near-term indicators, a majority of managers still expect  business  conditions  to  improve  in  6  months’  time  œ  the expected   business   conditions index remained above 50 at 52.8 points. The PMI component results are a mixed bag with some disappointment on inventories being countered by moderating output volume declines and a more positive outlook.

Although the May and June PMI data indicate that the worst of the factory recession may be over, the low index levels (significantly below 50) hint that positive growth is not on the cards anytime soon. Indeed, the average PMI for 2009Q2 was 36.9, down from 38.6 index points during 2009Q1.


Source: Kagiso Securities, June 30, 2009.

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