Purchasing Managers Index gives back some gains

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By André Coetzee of Kagiso Securities.

The seasonally adjusted Kagiso PMI gave back some of February’s strong gains in March, falling by 4.8 index points to 55.6. Despite the decline, the PMI averaged 56.5 during 2010Q1 – the best reading since 2007Q2 and up strongly from 50.1 in 2009Q4. The quarterly figures suggest that the manufacturing sector will again make a positive GDP contribution in the first quarter of 2010.

The March decline was mainly as a result of the new sales orders index, which reversed February’s 13.2 points surge and declined by 13.8 points. Even after the big fall, the March reading (54.8) is in line with the long-term average of 54.6. At this stage, we interpret the sharp fall as a normalization to a more sustainable level for the index rather than indicating the possible start of a more worrisome trend.

On a more positive note, the PMI employment index posted a further marginal gain to 53.2 index points. March was the third consecutive month of above 50 readings, indicating that the factory sector may be increasing its workforce.

Purchasing managers remained very optimistic about future prospects with the expected business conditions index above 70 points (73.2 in March) for the third month in a row. One has to go back to 2004Q2 to find expectations at such a high level for more than two consecutive months.

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Source: Andre Coetzee, Kagiso Securities, April 14, 2010.

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