A KEY survey on manufacturing due today is unlikely to provide any solace for the economy's second-biggest sector.

The purchasing managers' index (PMI), a reliable health gauge for the manufacturing sector, is expected to have declined for the third month in a row.

Factory output has been hit hard by the recession in Europe and a slowdown in the US and China, taking a heavy toll on demand for locally manufactured exports.

Domestic demand for manufactured goods is also on the back foot as business confidence wanes and growth in the disposable income of consumers slows down in response to lower wage settlements.

"I don't see a significant upturn in manufacturing any time soon," says George Glynos, MD at Econometrix Treasury Management. "The global economy is struggling and that gets reflected in external demand for South African goods, which makes a fairly sizeable impact on local growth and manufacturing," he says.

The PMI leads official statistics on factory output by a couple of months.

It has now declined for three months in a row, but has remained above the key 50 point level, marking the cutoff between expansion and contraction.

Standard Bank economist Thabi Leoka predicts that the index dipped to 49 last month from 53,6 in May - which would be the first reading below 50 points since December last year.

"The manufacturing sector is in distress - it is so dependent on exports and global growth," she says. SA exports about a third of its manufactured goods. The latest official data showed that factory output rose by a meagre 1,2% year-on-year in April after a 2,9% increase in March.

The figures are worrying as manufacturing accounts for about 15% of economic output and 14% of formal employment.

Analysts say the sector is also being hampered by high labour costs and electricity constraints.

Two of the main components of the PMI - business activity and new sales orders - have fallen for three months in a row.

Over the same period, inventories have climbed, suggesting that factories are producing more than they can sell.

The trend overall in the economy suggests that "productive" sectors like mining and manufacturing are struggling even though consumption is holding up.

"While you can rely on credit-induced consumption expenditure, you don't want that to become the mainstream driver of the economy," Mr Glynos says.

Industry figures due tomorrow are expected to show that growth in new vehicle sales slowed last month, after surging by 20,7% year-on-year during May.

"Such high car sales levels were surprising, particularly as the domestic outlook remains opaque," Ms Leoka says.

isam@bdfm.co.za