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MANUFACTURING: Sector Shows Strong Improvement

 



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The Stellenbosch-based BER’s latest Manufacturing Survey revealed a notable improvement in manufacturing business confidence; albeit that it remains at low levels. The business confidence index came in at 22 – up from 11 index points previously (long-term minimum level). “The survey shows a modest yet clear change of trends when compared to the first and second quarter results. While manufacturing activity is still under pressure, the results confirm that the worst is behind us” said BER economist Christelle Grobler.

Domestic sales volume indicators remained in negative territory but the rate of decline surprised on the upside by moderating noticeably. “The largest improvement was in the basic metals sub-sector which saw a turnaround from a net majority reporting declining local sales volumes previously to a reading of zero (i.e. volumes in line with a year ago) in the current survey quarter” said Grobler. Foreign demand conditions also appear to be improving, supporting the notion of the beginning of a global recovery.

In line with the slightly stronger local and international demand, the pace of contraction in production volumes has slowed. “The most significant change once again took place in the basic metals sub-sector, with respondents in this category actually reporting an increase in production volumes” said Grobler. This result corresponds with the latest manufacturing production data released by Stats SA last Thursday, showing an increase of 3.3% between June and July 2009 (seasonally adjusted), and mirrors the trends in the August Kagiso PMI.

Furthermore, manufacturing employment trends have taken a turn for the better during the third quarter. Labour forces are shrinking at a slower rate than before and the average hours worked per factory worker have recovered somewhat. On the other hand, the rate of increase in average labour costs per unit of production rose faster than expected (probably as a result of high wage increases granted nationwide).

However, the average domestic selling price per unit appears to have stabilized after having presented possible signs of deflation in the previous quarter. “Respondents have indicated that domestic selling prices are in line with those of a year ago. On balance, the sector experienced an improvement in profitability during the quarter” said Grobler.

General business conditions seem to be improving gradually, and respondents have not been this positive regarding expected business conditions in 12 months’ time since 2007Q4. The slight optimism that has sneaked into the sector has also translated into an upscaling of longer term fixed investment plans.


 
 
 
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