The Kagiso PMI – a valuable tool

for the manufacturing sector

Hugo Pienaar

Outline

History of the PMI

Technical details – a look at the questionnaire

How useful is the index – a comparison with other data

sources

Historical development of the PMI

• Brainchild of Mike Poulter (University of Natal) and Murray

Pellissier (BER) in June 1998 to develop SA counterpart to

US PMI

• Joint venture between IPSA (now CIPS) and BER to start a

survey under purchasing managers in the SA

manufacturing sector and to produce a PMI

• First survey conducted in September 1999 and first

released to the public in August 2000

What does the PMI measure - a look at the questionnaire (send to purchasing

managers in the manufacturing sector)

PMI measures monthly changes

Qualitative answers 30%

25%

20%

10%

15%

• A composite index calculated as a weighted average of 5 indices of activity in the manu sector

• Indices construction (% reporting increase + half reporting the same)

What does the PMI measure – summary

• Indices range from 0 – 100, above 50 indicates increase

• Diffusion indices, i.e. indicate the degree to which the change it measures is

dispersed or “diffused” throughout the sample population

• PMI does not measure the confidence levels of purchasing managers, but

rather gauges activity levels in the manufacturing sector

• Measure of the overall manufacturing sector – no information on specific sub-

sectors. There could at times be wide diversions between total and sub-sectors

• Seasonal adjustment

30

35

40

45

50

55

60

65

Sep-99 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12

ind

ex

PMI PMI 3 month moving average

After tough ‘12, PMI back above 50 in Feb ‘13

Expansion

Contraction

Kagiso PMI tracks the global manufacturing cycle

Expansion

Contraction

30

35

40

45

50

55

60

65

Sep-99 Mar-01 Sep-02 Mar-04 Sep-05 Mar-07 Sep-08 Mar-10 Sep-11

Ind

ex p

oin

ts

Global manufacturing PMI SA PMI

Q4 temporary factors • Japan / China dispute • Hurricane Sandy • Global auto weakness

Q1 recovery, but • Higher oil price • US tax rises

-25

-20

-15

-10

-5

0

5

10

15

30

35

40

45

50

55

60

65

Sep-99 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12

Y-o

-Y %

ch

an

ge

ind

ex

PMI (lhs) Manufacturing Production Volume (2mma)

PMI closely tracks actual Stats SA manufacturing production

volumes

-25

-20

-15

-10

-5

0

5

10

15

20

Mar-99 Ápr-01 May-03 Jun-06 Jul-07 Áug-09 Sep-11

Y-o

-Y %

ch

an

ge

Total Manufacturing Paper & paper products

Trends in specific sub-sectors often more intense than the

overall manufacturing picture (Stats SA)

-80

-60

-40

-20

0

20

40

60

30

35

40

45

50

55

60

65

1999Q3 2000Q3 2001Q3 2002Q3 2003Q3 2004Q3 2005Q3 2006Q3 2007Q3 2008Q3 2009Q3 2010Q3 2011Q3 2012Q3

net b

ala

nce

ind

ex

PMI (quarterly average, lhs) BER Manufacturing Production Volumes

PMI and BER Manufacturing Survey Production Volumes

-3

-2

-1

0

1

2

3

4

5

6

7

30

35

40

45

50

55

60

65

1999Q3 2000Q3 2001Q3 2002Q3 2003Q3 2004Q3 2005Q3 2006Q3 2007Q3 2008Q3 2009Q3 2010Q3 2011Q3 2012Q3

Y-o

-Y %

ch

an

ge

ind

ex

PMI (quarterly average, lhs) Real GDP Growth

PMI tracks SA GDP growth and importantly signals turning

points

-10

-5

0

5

10

15

20

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

Sep-99 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12

Y-o

-Y %

ch

an

ge

ind

ex

PMI Price Index (lhs) PPI All Industries

PMI price index reliable leading indicator for PPI

-20

-15

-10

-5

0

5

10

15

30

35

40

45

50

55

60

65

Sep-99 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12

Y-o

-Y %

ch

an

ge

ind

ex

PMI (lhs) SARB Coincident Indicator

PMI and SARB Coincident Business Cycle Indicator

Bureau for Economic Research

Economic information that works for you

Website: www.ber.ac.za E-mail: hugop@sun.ac.za Tel No: 021 887 2810

This presentation is confidential and only for the use of the intended recipient. Copyright for this presentation is held by Stellenbosch University. Although great care is exercised

to record and interpret all information correctly, Stellenbosch University, its division BER and the author(s)/editor do not accept any responsibility for any direct or indirect loss that

might result from accidentally inaccurate data and interpretations by third parties. Stellenbosch University further accepts no liability for the consequences of any decisions or

actions taken by any third party on the basis of information provided in this presentation.