The seasonally adjusted Kagiso Purchasing Managers Index (PMI) remained relatively stable in August, losing a marginal 0.8 index points to a level of 50.2.

This placed the average PMI reading for the first two months of the third quarter at 50.6, which is lower than the average levels achieved in the first and second quarters of 2012, of 55.4 and 51.8, respectively.

The August PMI is down from 51 points in July, but higher than the 48.2 points recorded in June.

Kagiso Asset Management head of research Abdul Davids expected the manufacturing sector to once again place a drag on overall gross domestic product growth during the third quarter.

After gaining nearly 4 points in July, the business activity index lost a negligible 0.2 points in August to remain steady at 50.6.

The new sales orders index, which continued to be quite volatile, lost 5.3 points and fell back below the 50-point mark to 46.9.

“Despite the monthly volatility, we are seeing a clear downward trend in the demand for factory goods…After averaging at a robust level of 60.6 during the first quarter, this index declined to an average of 51.2 in the second quarter. The average for July and August is even lower at 49.6,” Davids pointed out.

Purchasing managers continued to downscale their expectations, as reflected in the 1.1-point decline in the expected business conditions index to 52.9.

Davids indicated that the PMI leading indicator, which remained below one for the fifth consecutive month, corroborated the fairly downbeat outlook. “This indicates that supply continues to exceed demand and this does not bode well for manufacturing sector production,” he said.

The rising oil price resulted in a sharp spike of 8.2 points in the price index, which was at 70.9.

“Brent crude oil prices have been trading above $110/b for some time and the Department of Energy has announced that local fuel costs will rise by 93c/l in the beginning of September,” Davids stated.

Meanwhile, the employment index gained 4 points and rose to 51. However, he cautioned that, as was the case in May, too much should not be read into this.

“The last time the employment index was above the 50 point mark for more than two consecutive months was between February and April 2010. Even more striking is that 2007 was the last time that it measured above 50 for more than three consecutive months,” Davids noted.