Manufacturing activity slipped back into contractionary territory in June on the back of weaker demand, despite easing input cost pressures and improving business confidence.The seasonally adjusted Absa purchasing managers’ index (PMI) — compiled by the Bureau for Economic Research (BER) — declined by 3.5 points to 47.3, falling below the neutral 50-point mark after being on expansionary ground during April and May. “The decline reflects softer demand conditions across the manufacturing sector, though easing geopolitical tensions helped ease input cost pressures and improve manufacturers’ expectations for the months ahead,” Absa said.Business activity improved slightly, but the index was still in negative territory at 45.6 points in June from 43.5 in May, while that for new sales orders fell to 40.6 from 44.6, marking a second consecutive monthly decline after reaching a high of 52.9 in April. Purchasing managers surveyed reported some customers are delaying purchases in anticipation of lower prices after the easing in oil prices and fuel costs as the warring countries in the Middle East conflict pursue lasting peace. This reversal follows the front-loaded demand seen earlier in the second quarter.Manufacturers’ own inventory levels declined from 55.8 to 49.0, falling below the neutral level after two consecutive months above 50.“Purchasing managers appear to be delaying restocking, expecting further declines in input prices after the easing of tensions in the Middle East and lower Brent crude oil prices,” Absa said.The supplier deliveries index, which is inverted, eased slightly to 60 from 61.6 in May but remained elevated, pointing to slower-than-normal deliveries. This was due to supply chains not yet fully normalising and logistical pressures still being evident despite the prospect of the US-Iran war coming to an end.The employment index dropped steeply to 41.4 from 48.4, reversing the gains made in May and suggesting that factory executives are still cautious about hiring amid weak demand conditions and continued uncertainty regarding the pace of the recovery.Input cost pressures have, however, eased significantly, with the purchasing price index declining by 13.5 points to 71.3 in June, the largest monthly easing in recent months. Lower Brent crude oil prices, a relatively stronger rand and diesel price reductions all contributed to slower input cost inflation, suggesting that April and May probably represented the peak in manufacturing price pressures, Absa said.The index tracking expected business conditions six months ahead increased from 52.9 to 56.6, reflecting improved confidence on the back of developments in the Middle East.Nevertheless, respondents continued to highlight domestic uncertainty, including Tuesday’s nationwide protests against illegal immigration, as a risk to business activity.“The June PMI results suggest that South Africa’s manufacturing sector lost momentum at the end of the second quarter as weaker demand pushed the headline index back into contractionary territory,” Absa said.“Encouragingly, easing oil prices and lower fuel costs have provided meaningful relief to manufacturers’ input costs, while expectations for business conditions have improved. However, sustained weakness in demand and employment suggests that the sector is likely to remain under pressure in the near term.”Business Day