Picture: THINKSTOCK
Picture: THINKSTOCK

THE manufacturing sector started 2016 on the back foot as the seasonally adjusted Barclays purchasing managers index (PMI) fell two index points to 43.5 in January.

This is more than five index points below the average level recorded in 2015.

"Unfortunately, purchasing managers do not foresee an improvement over the near term as the index measuring expected business conditions in six months’ time declined to 39.4 — the lowest level in almost seven years," Barclays said.

The PMI leading indicator also fell further below one. This meant that inventories continued to outstrip sales orders, which did not bode well for production growth, Barclays said.

The business activity index continued its recent downward trend and fell to 37.5 index points. The 4.9 point drop brought the index to the lowest level since 2009.

"Some respondents stated that the seasonal drop in demand was steeper this January, which (was) likely (to have) weighed on production. Indeed, the new sales orders index fell by 4.1 index points to 40.7. This is, barring January 2009, the lowest January reading on record.

"In line with the subdued reading on the activity indicator, the employment index also fell. The index declined to 45.4 index points in January from 46.5 in December," Barclays said.

As expected, the price index rose sharply in January, it added. At 86 points, the index is at the highest level in almost two years.

Barclays said this was probably driven by the significantly weaker rand exchange rate, which pushed up the cost of importing raw materials and intermediate products required for the local manufacturing production process.

"On the positive side, the increased cost of importing goods may lead to increased import substitution, which could boost demand for some locally produced goods that are usually sourced internationally," it added.

The PMI is an economic activity index based on a survey conducted by the Bureau for Economic Research and sponsored by Barclays.