Nedbank: Manufacturing production

12 Jul.

Nedbank Economic Commentary: Manufacturing production – May 2011.

Manufacturing output growth remains weak in May.

• Growth in manufacturing production remained weak in May following the sharp slowdown in April. Growth rose to only 0,6 % y-o-y from a revised 0,2 % (previously 0,4 %) in April and against the market consensus of 2,4 %.
• Output was up by 0,4 % m-o-m on a seasonally adjusted basis.
• Over the month, output in 4 of the 10 major manufacturing industries contracted on a seasonally adjusted basis, with furniture and other manufacturing (-7,4 % m-o-m) the largest decliner. On a year-on-year basis the largest decline was recorded in food and beverages, which was down by 4,2 %.
• The weakness in the manufacturing sector is not surprising following the strong 14,5 % q-o-q seasonally adjusted and annualised growth rate in the first quarter of this year. However, the outlook for the sector has dimmed in recent weeks. The global economy is currently undergoing a soft patch, which will dampen activity in export-orientated industries. Additionally, the impact of labour strikes on the sector, with industries accounting for a combined 60 % of manufacturing output currently experiencing labour unrest, could be profound.
• These numbers indicate that the slowdown in manufacturing output is deeper than initially expected which, combined with recent data suggesting that consumer demand remains moderate, support the view that the Reserve Bank will be reluctant to hike interest rates unless there is evidence of second-round inflation. We therefore maintain our view that the first hike in interest rates will come only in early 2012.

Comment

Growth in manufacturing production remained weak during May after growth fell sharply in April on the back of the large number of public holidays during that month.

Over the month, production contracted in 4 of the 10 major manufacturing divisions on a seasonally adjusted basis. Basic iron and steel (1,9% m-o-m) and motor vehicles & other transport equipment (2,2% m-o-m) were the main contributors to the m-o-m increase in overall output, but their impact was partly offset by declines in food & beverages (-1,1% mom) as well as furniture & other manufacturing (-7,4% m-o-m).

On a year-on-year basis, output of basic iron and steel & machinery (5,9%) and petroleum & chemical products (3,1%) rose, but declines in food and beverages (-4,2%) as well as motor vehicles & other transport equipment (-3,4%) limited the growth rate. In the three months to May, manufacturing output was up by 0,5% on a seasonally adjusted basis compared with the three months to February. …

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