THURSDAY's report on manufacturing production data for January is the data highlight of the week. The figures are likely to "show some recovery after a worse than expected slowdown in December, particularly in the steel and petroleum sectors", Investec economist Kgotso Radira says.

The Kagiso purchasing managers index (PMI), which serves as a gauge of the health of the sector, suggested in January that the sector's production had recovered after December's dismal 0,2% year- on-year increase.

Last month the PMI increased to 54,8 index points from 54,6 in January. The PMI reflects the percentage of purchasing managers in an economic sector reporting better business conditions compared with the previous month.

A number above 50 implies growth, while below 50 indicates contraction in the sector.

Kagiso Group consultant Theo Vorster said earlier this month that the "most heartening" trend in the latest numbers was that the PMI employment subindex had risen above the 50-point mark to 51,6, suggesting that factories were employing again for the first time since the recession .

Mr Radira noted that there had been nine months of below-50 index readings, prior to February .

The new sales orders subindex was still elevated, at 59, showing that demand for South African- produced goods was still robust, which boded well for the sector's growth prospects, he said.

Meanwhile, the PMI's prices subcategory bolted higher last month, to 81,7.

But Brait economist Colen Garrow says there is a "double- edged sword to this number".

"On the one hand, it suggests higher inflation - electricity, fuel, property taxes, etc," he says.

"While international crude oil prices remain persistently strong, not being offset sufficiently by a stronger dollar-rand exchange rate, upward pressure on fuel prices is expected to remain." About 100c /l still needs to be recovered from motorists, Mr Garrow says.

"The outlook towards prices is also aggravated by the 18c /l hike in fuel levies announced in the national budget, effective from April 6 . It is ironic, therefore, that upward price pressure may encourage monetary tightening later in 2011," he says. "Higher interest rates may in turn also encourage strength in the rand exchange rate, to the detriment of export-biased manufacturers."

The outlook for the sector remains favourable but it will "largely depend on the pace of global growth", he says. "Overall, the PMI indicates that manufacturing production growth continued at a modest pace in the first quarter of this year, boding well for the sector's contribution to GDP (gross domestic product) growth."

Gold and foreign exchange reserves data are due out today. Economists expect the gross reserves to have shown a further increase last month after rising the month before.

The US gold price hit a record high last week, following consistent rises over the past month.

The Reserve Bank's forward position in dollar reserves has increased to 4,3bn since August last year, because of the Bank's engagement in longer-term foreign exchange swap transactions.

The Bank uses swap transactions to drain liquidity from the markets. This means the Bank will always reflect an overbought forward position. "With increased participation in the market, we expect the Bank's forward position to increase further in the coming months," Mr Radira says.

andersona@bdfm.co.za