The seasonally adjusted Kagiso PMI entered 2010 on a positive note, rising by another 1.1 points to reach 53.6 index points – the highest reading since April 2008 – during January 2010. The latest number signals the third consecutive month above the key 50 mark and indicates that the factory sector recovery continues to gather momentum.

A particular highlight of the January release is that after 20 months of job shedding, the seasonally adjusted PMI employment component – which has lagged the recovery in the headline index – rose above 50 to 51.9 index points in January. The level of the index, if sustained in coming months, may provide the first indication that factory job losses have stopped.

Continued signs of improved demand for manufactured goods are key to ensuring that manufacturers start hiring once again. The new sales orders index saw a sixth consecutive gain, rising by 0.7 points to 55.4. In reaction to the increased demand, manufacturers continue to ramp up production – after surging by 7.8 points during December 2009, the business activity index gained 1.1 index points to 56.2 in January to reach the highest level since mid-2007.

Another positive development is that purchasing managers expect the factory revival to be sustained. The expected business conditions index soared to 73.3 points in January to reach a level last seen in mid-2005. The positive outlook corroborates other recent data releases, in particular the further gain registered in the SA Reserve Bank’s leading economic indicator towards the end of 2009.

                                                                                                                                                      André Coetzee, Kagiso Securities