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Load shedding and the three-week steel workers strike weighed on business activity in October - Absa's PMI

Business activity in the manufacturing industry is expected to rebound in the next six months as the steel workers’ strike and a return to load shedding weighed on activity in October. Picture: Itumeleng English

Business activity in the manufacturing industry is expected to rebound in the next six months as the steel workers’ strike and a return to load shedding weighed on activity in October. Picture: Itumeleng English

Published Nov 3, 2021

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BUSINESS activity in the manufacturing industry is expected to rebound in the next six months as the steel workers’ strike and a return to load shedding weighed on activity in October.

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) released yesterday, fell further to 53.6 points in October from a downwardly revised 54.7 points in September.

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However, the PMI remained in expansionary territory for a third consecutive month at above 50 points which separates growth from contraction.

Absa said the business activity and new sales orders indices lost the most ground in October, as was the case in September.

Absa economist Miyelani Maluleke said supplier delivery lead times and purchasing prices remained elevated in October, highlighting the continued pervasive impact of global bottleneck pressures.

Maluleke said at least two key developments in October helped to explain the almost 4-point drop to 46.1 points in the business activity index.

“These are the three-week strike in the steel and engineering sector and the return of Eskom load shedding for notable periods during the month,” Maluleke said.

“Seen in isolation, these adverse events had the potential to push the business activity index, orders and the overall PMI even lower.”

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The three-week long strike by nearly 500 000 Numsa workers in the steel and engineering industry last month, demanding an 8 percent increase, cost the sector R600 million in lost productivity and metalworkers R100m in lost wages.

Meanwhile, Eskom began implementing power cuts, up to stage 4 load shedding, as unplanned breakdowns continued crippling the struggling power utility’s capacity to meet demand.

However, Maluleke said there was also an important countervailing force in October.

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Maluleke said expectations with respect to future business conditions remained buoyant with declining Covid-19 cases and looser lockdown restrictions as the festive season approaches should boost consumer spending.

“Respondents reported slightly improved export sales in October, emphasising that it was domestic constraints that weighed on the demand for manufactured goods,” he said.

“Looking forward, respondents remained upbeat about an improvement in business conditions over the next six months.”

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Moving to price pressures, Maluleke said though the producer price index for final manufactured goods fell back slightly in October, the reprieve on input cost pressures was likely to be temporary with a large fuel price hike on the cards for November.

Investec’s economist Lara Hodes said October’s disappointing outcome further hindered employment growth, with the employment index slipping further below 50 to 47 points, from 47.2 points in September. “Prospects for employment in the manufacturing sector remain bleak owing largely to the uncertainty surrounding reliable power supply and the recent labour unrest in an important sub-sector of manufacturing,” Hodes said.

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BUSINESS REPORT ONLINE

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