South Africa’s seasonally adjusted Purchasing Managers’ Index (PMI) improved by 1.2 points to 51.6 in June, staying above the 50 mark that separates expansion from contraction for a third consecutive month, but manufacturing conditions remained tough, the sponsor of the survey Kagiso Tiso Holdings said in a statement. It noted that there were modest improvements across all the major sub-indices, with only the employment sub-index declining last month. For Q2 2013, the PMI index was by 0.1 points higher compared to Q1 2013, at 50.8.

The two sub-indices with the largest weight in the PMI, business activity and new sales orders, were the major contributors to the improvement of the headline index last month. The business activity index gained 1.6 points to 52.2 points, but the level of the index at just above 50 suggests that manufacturing output remained under pressure, Kagiso Tiso said. The new sales orders index increased by 2.9 points in June to 54, indicating an improved demand for manufactured goods.

The employment index fell by 2.3 points last month to 44.9, reflecting a sustained weak employment environment.

The price index edged down by 0.2 points to 82.2 in June, indicating that producer prices remain rigid at these high levels. The relatively high index level is a sign that manufacturers face sustained input cost pressure, partly caused by the significant weakening of the rand, which makes imported materials used in the manufacturing process more expensive.

Looking forward, South African purchasing managers expect the situation to remain challenging with muted demand and relatively high input prices. The sub-index measuring expected business conditions in six months’ time declined by 1.3 points to 52.8 in June. The PMI leading indicator (the ratio of new sales orders to inventories) stayed below 1 for a second straight month, at 0.9, showing that the level of purchased stock exceeded the demand for manufactured goods, which does not bode well for future factory sector production.