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Media release

Barclays Purchasing Managers’ Index (PMI) Up To 53.7 In June 2016

The seasonally adjusted Barclays Purchasing Managers’ Index (PMI) rose to 53.7 index points in June, up from 51.9 in May. The PMI has now remained above the neutral 50-point mark for four consecutive months. This is an encouraging sign that conditions in the factory sector may be improving after a lacklustre 2015 and slow start to 2016.

The solid performance of the PMI was supported by all five major subcomponents coming in above 50 points. Stronger demand, according to some respondents driven by improved exports, helped lift production higher. As a result, the new sales orders and business activity indices rose to just above 54 index points. However, it remains to be seen whether this will be sustained.

Domestic demand remains weak and exports could come under renewed pressure due to weaker UK and Eurozone growth in a post-Brexit world. A few respondents indicated that demand was supported by clients stocking up in anticipation of possible supply disruptions if upcoming wage negotiations in the automotive sector result in labour unrest in the third quarter. This suggests that any improvement in domestic demand may have been temporary. Increased stock levels were also seen in the PMI. The inventories index rose to 57 from 51.5 previously. The current level is the highest in almost a year.

The price index ticked up for a second straight month to 81.4 points from 80.1 previously. Despite the recent upward move, the average for the second quarter is more than 8 points below the first-quarter average. This corresponds to the official Producer Price Index which also suggests a slight moderation in final manufactured goods’ inflation in the second quarter. Through the remainder of the year, upward price pressure could intensify as a sustained weak rand and higher electricity and fuel prices push up manufacturers’ costs.

This may have contributed to purchasing managers being less upbeat about expected business conditions in six months’ time. This index fell to 52.9 from 54.1 in May – thereby still suggesting that conditions are expected to improve going forward. However, high inventory levels (compared to new sales orders) pushed the PMI leading indicator back below 1 for the first time since January 2016. This usually does not bode well for production growth going forward as inventories outstrip demand.

The seasonally adjusted Barclays Purchasing Managers’ Index (PMI) rose to 53.7 index points in June, up from 51.9 in May. The PMI has now remained above the neutral 50-point mark for four consecutive months. This is an encouraging sign that conditions in the factory sector may be improving after a lacklustre 2015 and slow start to 2016.

The solid performance of the PMI was supported by all five major subcomponents coming in above 50 points. Stronger demand, according to some respondents driven by improved exports, helped lift production higher. As a result, the new sales orders and business activity indices rose to just above 54 index points. However, it remains to be seen whether this will be sustained.

Domestic demand remains weak and exports could come under renewed pressure due to weaker UK and Eurozone growth in a post-Brexit world. A few respondents indicated that demand was supported by clients stocking up in anticipation of possible supply disruptions if upcoming wage negotiations in the automotive sector result in labour unrest in the third quarter. This suggests that any improvement in domestic demand may have been temporary. Increased stock levels were also seen in the PMI. The inventories index rose to 57 from 51.5 previously. The current level is the highest in almost a year.

The price index ticked up for a second straight month to 81.4 points from 80.1 previously. Despite the recent upward move, the average for the second quarter is more than 8 points below the first-quarter average. This corresponds to the official Producer Price Index which also suggests a slight moderation in final manufactured goods’ inflation in the second quarter. Through the remainder of the year, upward price pressure could intensify as a sustained weak rand and higher electricity and fuel prices push up manufacturers’ costs.

This may have contributed to purchasing managers being less upbeat about expected business conditions in six months’ time. This index fell to 52.9 from 54.1 in May – thereby still suggesting that conditions are expected to improve going forward. However, high inventory levels (compared to new sales orders) pushed the PMI leading indicator back below 1 for the first time since January 2016. This usually does not bode well for production growth going forward as inventories outstrip demand.