August's Purchasing Managers Index saw an improvement in manufacturing conditions, with the seasonally adjusted PMI increasing to 47 index points from 42.8 in July, Investec said on Monday.

However, the composite index remained below the critical level of 50, indicative of a contraction in the manufacturing sector, said André Roux, head of fixed income at Investec Asset Management.

Both business activity and new sales orders improved during the month, with the seasonally adjusted business activity index increasing to 44.4 from 39.7 in August and the new sales orders index rising from 37.9 to 44.

"At 87.5, the PMI price index dipped below the level of 90 for the first time in five months.

"The slight respite in input price pressure is likely due to the combined effect of softer international commodity prices, particularly oil, and the stronger rand exchange rate," Roux said.

"The seasonally adjusted inventory index as well as the purchasing commitments index increased to levels above 50, hinting that purchasing managers are adopting a slightly more optimistic stance," Roux added. Expectations regarding business conditions in six months' time were also adjusted upwards.

However, employment conditions within the manufacturing sector remained under pressure, with the seasonally adjusted employment index increasing marginally from 42.4 in July to 43.6.

"While domestic demand is waning and foreign demand is likely to moderate going forward, the outlook for the sector remains under pressure.

"However, the uptick in the latest reading and an improvement in expectations by purchasing managers does suggest that the sector may be near the bottom in the current cycle," Roux said.

Sapa