The seasonally adjusted Kagiso purchasing managers index (PMI) improved to 39,3 index points in August, up from the 37,3 points registered in July, while South Africa's manufacturing sector could now be "on track" to join the rebound in global manufacturing.

Output volume indicators had shown some long-awaited signs of life, said Kagiso Securities head of fixed income André Coetzee, noting that both the business activity and the new sales orders indices had registered their highest figures since October last year.

The business activity index had improved to 38,3 points in August, up from 33,8 in July and a low of 31,2 points in March. The new sales orders index improved to 39,5 points, up from 35,8 points in July and a low of 31,9 points in February.

"Underlying indicators of output volumes, along with the slight increase in the headline figure, indicate that South Africa's manufacturing sector is, albeit with a lag, on track to join the global manufacturing rebound, as indicated by the global PMI, which increased from 33,7 points in December 2008, to the neutral 50-point level during July 2009," said Coetzee.

However, the near-term demand indicators had not followed the same positive upturn as the output volume indicators, noted Coetzee.

While the seasonally adjusted inventories index had improved to 37 points, compared with 33,5 points in July, the backlog of sales orders had weakened to 27,3 points, compared with 29,7 points in July. This was, however, higher than the 23,9 points registered by the backlog of sales orders index in June.

The lack of response of purchasing commitments, which declined to 36,6 points in August, compared with 36,7 points in July, also indicated that a full-blown demand recovery had not yet taken hold, said Coetzee.

Further contributing to a still low headline PMI figure, was the seasonally adjusted employment index, which weakened to 37,5 points in August, compared with 40,8 points the month before.

"As indicated in previous reports, the response of employment tends to lag developments in final demand," noted Coetzee.

Meanwhile, input cost pressures continued to ease during August, with the price index declining to 45,3 points, down from the 48,7 points registered in July.

Kagiso Securities highlighted that a "strong majority" of purchasing managers now expected business conditions to improve in six months' time, with the expected business conditions index registering 59,3 points in August, compared with 55,1 points in July.

"Purchasing managers haven't been this optimistic since December 2007, at the time of what we now know was the start of the US recession," said Coetzee.

The PMI, which is a key measure of manufacturing activity, has remained below the 50-point level since May last year.

After registering improvements in May and June, which was, at the time, seen as a potential "glimmer of hope" for the South African economy, the PMI, in July, recorded a "disappointing" performance in comparison with the global PMI.