PMI off March’s 13-month high

The production manufacturing index (PMI) slipped to 56.4 points in April after having reached a 13-month peak of 57.2 pts in March. Two of the key categories in the PMI - the business activity and new sales orders sub-indices - moderated in April, to 58.4 pts and 61.1 pts respectively, from 59.7 pts and 62.0 pts in March. Both indices are still well above their levels recorded in January and February. “Disappointingly,” said Standard Bank economist, Nomvuyo Guma, “the gauge of expected business conditions did not improve in April. This sub-index had slipped to 58.1 pts in March - the lowest level since July 2010 - and remained there in April. However, the fact that this sub-index was unchanged in April, instead of declining as in the two prior months, is encouraging.” Also encouraging was that the employment sub-index of the PMI rose in April despite the moderations seen in business activity and the stagnant expectations with regard to future business conditions. “The employment sub-index remained below the key 50 level,” Guma added, “which indicates that this sector had shed further jobs in April. However, it is a significant improvement on the 46.9 pts recorded in March. “The prices sub-index also moderated in April, which is good news for the domestic inflation outlook. This sub-index eased to 82.9 pts in April, from 88.0 pts in March — in line with the easing in global food and energy prices in the month. The prices sub-index nevertheless remains quite high, indicating that 8 in 10 purchasing managers have observed increases in prices.” Looking at the implications for interest rates, Guma said that no impact was expected. “The data affirms our view that interest rates will remain on hold this year,” he told FTWOnline. “Considering that the upside risks to the inflation outlook have moderated recently, with oil prices and global food prices easing and with the economic growth outlook for this year relatively weak, we maintain our view that the monetary policy committee (MPC) is likely to err on the side of caution when it comes to increasing interest rates. We foresee the first hike in Q1:12.”