The seasonally adjusted Absa Purchasing Managers’ Index (PMI) lost some momentum in December 2021 but remained in expansionary territory. The headline index declined by 3.1 points to 54.1. Excluding inventories, all the major subcomponents of the PMI were lower in December. The business activity index lost 5 points to just below the key 50 mark. Despite this, at 49.5 in 2021Q4, the index averaged well above the weak level of 43.1 recorded in the third quarter. Even so, the Q4 average was still notably lower than the average of almost 57 points recorded in the second quarter of 2021. This suggests that while actual manufacturing production should post quarterly growth in 2021Q4, the level of output is likely to remain below where it was in the second quarter.
The new sales orders index was lower at 51.7 in December. Of interest here was a large (more than 10 points) decline in the export index. While it is not clear what drove the notable export easing, slower services sector activity in the Eurozone amid a surge in COVID-19 infections and an associated tightening in lockdown restriction in several countries at the end of 2021 may have contributed. There were a few other noteworthy moves in the key PMI subcomponents during December, all of them negative. The employment index recorded a significant decline of more than 8 points to well below the neutral 50 level. Although we would caution not to read too much into a single month’s print, the employment dynamics need to be watched. The weakness in the employment indicator could be seen against the backdrop of reduced optimism about future business conditions. The index measuring expected business conditions declined for the third month in a row (to 53.1).
The news on the input cost front was also not encouraging, with the purchasing price index rising further to reach the highest level since early in 2016. Amongst other factors, the combination of weak employment dynamics and fast rising input costs complicates upcoming domestic monetary policy decisions.