Absa South Africa Manufacturing Purchasing Managers Index (PMI)

Absa Manufacturing Purchasing Managers Index (PMI) is an indicator of business conditions in the South African manufacturing sector. It is compiled by the South African Bureau of Economic Research and is sponsored by Absa. The indicator is based on the popular and widely used PMI index from the IHS Institute for Supply Management.

To calculate the component indices, the Bureau of Economic Research conducts monthly surveys of purchasing managers from manufacturing companies. The managers are offered to evaluate the state of a specific activity (for example, production) in their company: whether it has increased, decreased or has not changed. The index value is calculated as a sum of the percentage of respondents reporting an increase and half of responses reporting no change. In this index, 50 means no changes, a value above 50 means an increase in activity, while a value below 50 indicates a decrease.

The total PMI index is calculated as the weighted average of the following indices (weights in brackets): business activity (0.05), new orders (0.20), employment (0.20), supplier deliveries (0.40) and inventories (0.15).

The manufacturing PMI is especially closely monitored by analysts. The manufacturing sector is a supplier of goods for the primary industry (agriculture and mining), as well as for the tertiary industry (for example, retail and wholesale). Thus it is believed that changes in economy begin with the manufacturing sector.

PMI is interpreted as a leading indicator of production and inflation. PMI growth indicates favorable market conditions and it can be seen as positive for the South African rand.