MANUFACTURING: Manufacturers Expect Patchy Improvement
Recent Western Cape Business News
STELLENBOSCH-based BER’s latest Manufacturing Survey indicated that manufacturing business confidence increased by 9 index points to reach 28 during 2010Q1. Although business conditions improved noticeably on balance, the recovery is not yet broad-based.
“It is clear from analyzing the underlying sub-sectors that the recovery in the manufacturing sector is still rather patchy – with producers in the transport equipment and basic metals industries leading the pack,” says BER economist Christelle Grobler.
One of the main trends of the survey results was the better than expected export performance – the majorities (net) reporting declines improved notably and are currently at levels last witnessed in 2007.
On the other hand, domestic sales and production volumes surprised on the downside during the quarter. Although domestic demand was weaker than expected, the respondents reporting declines in domestic sales and order volumes are at the lowest levels in two years. “In the previous survey, only one of the sixteen sub-sectors covered reported growth in sales volumes – during the current survey this increased to six out of the sixteen,” says Grobler.
While the pace of contraction in production volumes continued to slow, the tempo disappointed. This is in line with January manufacturing production figures released by Stats SA which also came in lower than expected (down 0.6% on December’s level – seasonally adjusted).
Corresponding to production trends, the employment indicators did not recover to the extent expected. Respondents did however indicate that production is likely to normalize during 2010Q2, with respondents forecasting volumes to be in line with those of a year ago.
The rate of increase in average total cost per unit of production did not decelerate significantly during the first quarter. Furthermore, the survey revealed that manufacturers manag-ed to up the rate of increase in domestic selling prices. The combination of a deceleration in total cost inflation and an accele-ration in the rate of increase in selling prices implies less pressure on the profitability of manufac-turers.
“Looking forward, conditions are expected to improve further, with the upturn in manufacturing activity spreading to more sub-sectors as the recovery in the South African economy becomes more entrenched,” says Grobler. Twenty two per cent (net) of respondents indicated that they expect business conditions to improve in 12 months’ time.
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