While the headline reading remained above the neutral 50-point level that separates expansion from contraction, underlying indicators pointed to a deterioration in operating conditions.
Image: Simphiwe Mbokazi/Independent Newspapers
South Africa's manufacturing sector lost momentum in May as demand softened and production levels retreated, although overall business conditions remained marginally in expansionary territory.
The latest Purchasing Managers’ Index (PMI), released on Monday by Absa Corporate and Investment Banking and the Bureau for Economic Research (BER), declined by 1.8 points to 50.8 in May from 52.6 in April.
While the headline reading remained above the neutral 50-point level that separates expansion from contraction, underlying indicators pointed to a deterioration in operating conditions.
The survey suggests that the boost manufacturers received in April from customers bringing forward purchases ahead of anticipated price increases has largely faded. Some respondents also warned that weaker demand could persist in the months ahead.
Business activity recorded the sharpest decline among the key components of the index. The business activity sub-index fell by 9.3 points to 43.5, slipping back into contractionary territory and reversing gains recorded at the start of the second quarter.
New sales orders also weakened significantly, dropping by 8.3 points to 44.6. The decline supports concerns raised by respondents in April that demand had been temporarily inflated by buyers seeking to avoid expected price increases.
Although export sales improved somewhat compared with the first quarter, they remained below the neutral level, indicating continued weakness in external demand.
At the same time, inventories continued to rise. The inventories index increased by 3.5 points to 55.8, reaching its highest level since early 2023.
While higher stock levels contributed positively to the headline PMI reading, economists noted that the increase likely reflects precautionary stock-building rather than confidence in stronger future sales.
According to Absa, supply chain pressures also remained evident. The supplier deliveries index was largely unchanged at 61.6, maintaining elevated levels for a second consecutive month.
Since higher readings indicate slower deliveries, the data points to ongoing logistical challenges, including disruptions to global shipping routes and persistent bottlenecks at South African ports.
Investec economist Lara Hodes said that given the current global environment, the raised reading is likely underpinned by logistical impediments, with ongoing interruptions to global shipping through the Strait of Hormuz.
"However, the ongoing war has led to high levels of uncertainty globally, driving up transport and other input costs, weighing on confidence and accordingly businesses are likely to defer the hiring of new employees in the near term," Hodes said.
According to the index, one of the brighter spots in the survey was employment. The employment index rose by 4.6 points to 48.4, marking a second consecutive monthly increase.
Although still below the neutral threshold, the reading is the strongest since mid-2025 and suggests manufacturers are becoming somewhat more optimistic about future labour requirements.
Absa said that manufacturers, however, continue to face significant cost pressures. The purchasing price index eased only slightly, declining by 0.8 points to 84.8. While this represents a moderation from the sharp increases recorded in March and April, input costs remain substantially higher than at the beginning of the year.
Survey respondents reported rising costs across several areas, including courier services and supplier surcharges. Although expected declines in diesel prices could provide some relief in the near term, cost pressures remain a major concern for the sector.
Despite the softer demand environment, business confidence improved. The index measuring expected business conditions six months ahead rose from 47.4 in April to 52.9 in May, moving back above the neutral 50-point mark.
The increase suggests that purchasing managers expect operating conditions to improve by the end of the year, although confidence levels remain below those recorded before heightened tensions in the Middle East began weighing on global markets.
Overall, the latest PMI data indicates that while South Africa’s manufacturing sector remains in better shape than it was during the first quarter, the recovery lost momentum during May.
Weakening demand and elevated costs continue to challenge manufacturers, while improved confidence offers some hope that conditions could strengthen later in the year if demand stabilises.
BUSINESS REPORT