Financial services firm Absa’s Purchasing Managers’ Index (PMI) decreased by 1.6 points to 43.1 in May, with the headline PMI remaining in contractionary territory for the seventh consecutive month.

This suggests that the manufacturing sector continued to suffer in May, despite some flickers of activity and demand improvement, albeit at extremely low levels. However, a decline in the supplier deliveries index pushed the headline PMI lower, the report says.

The business activity index indicated some improvement in demand, increasing by 3.4 points to 43.4 in May.

However, this was not strong enough to lead to an expansion in the sector. Loadshedding also remains a risk to manufacturing activity, Absa says.

Further, it points out that the supplier deliveries index has been difficult to interpret since the Covid-19 pandemic.

Across the world, the traditional signal of an increase being positive, with the index being inverted wherein slower deliveries are seen as a positive sign as they are caused by increased demand for supplies, is no longer valid, as supply chain bottlenecks and delays, and not higher demand, caused slower deliveries, Absa notes.

“Given our logistical issues, this issue has largely been resolved globally, but is still very relevant in the South African context. This month’s downtick, meaning faster deliveries, could technically mean that logistical constraints are easing. Respondents’ comments suggest this is unlikely, and the downtick is driven by lower demand.”

Therefore, the traditional signal of this being a negative indicator seems to be the correct interpretation. Reading too much into month-on-month swings remains difficult and it remains to be seen how this plays out in the coming months, Absa adds.

New sales orders increased by 2.2 points to 38.3 in May. This was likely owing to domestic demand recovering slightly as export sales continued to deteriorate at a rapid rate.

“Respondents referred to disruptions to trade with our neighbouring countries, while trade policy uncertainty and tariffs continue to weigh on the sector, which is burdened by logistical issues.”

Meanwhile, the inventories index ticked down slightly to 44.7 points in May compared with 47.8 in April. Some respondents referred to shortages for some of the materials, the report notes.

The purchasing price index decreased by 7.9 points to 60.4 in May owing to fuel price cuts at the start of the month. A lower Brent crude oil price and a stronger rand, despite the fuel levy increase, bode well for further fuel price declines at the start of June.

The employment index decreased further, remaining in contractionary territory for 14 consecutive months, the report states.

Further, the index tracking expected business conditions in six months’ time increased by a significant 13.9 points to 62.5 in May, which is the highest level since the end of 2024.

Sentiment improved as global tariffs were suspended and businesses showed faith that local political disagreements on policy within the government would be resolved, it states.