South African private sector companies have seen a decline in business conditions, but there has at least been an increase in employment and wages.

The S&P Global Purchasing Managers Index – a gauge of the private sector economy – dropped from 49.9 in September to 48.9 in October – staying below the no-change 50.0 threshold.

The reading was the most significant notable decline in the sector’s health in three months following a major stagnation in conditions in September.

“Business activity declined at the fastest rate since May, as fuel prices reportedly hit client orders and restrained output,” David Owen, Senior Economist at S&P Global Market Intelligence, said.

Business output across the private sector dropped for the second month in a row, with the rate of contraction rushing to the fastest since many.

Weakness of the demand side made activity drop, while some respondents said that higher fuel prices forced them to curtail output.

Following little to no change in September, new orders also dropped in October. Firms said higher fuel prices and inflation resulted in consumers cutting their expenses. Although new business from foreign clients was also in negative territory, it was the smallest contraction in three months.

Supply issues also worsened at the start of Q4 as firms saw a delay at South African ports, input shortages and slowdowns due to increased fuel costs.

“Overall delivery times lengthened to the greatest degree for seven months. With demand and supply conditions deteriorating, South African companies reported a steep cut to purchasing activity in October,” S&P Global said.

“Efforts to save costs were also highlighted as a drag on spending. Both purchases and inventories of inputs fell at the sharpest rates since July 2021.

Positive news

Looking more positively, reduced demand for inputs calmed the rate of inflation to the lowest points in over two years despite the increased fuel costs.

There was also a softer increase in wages as inflation slowed to its softest level since January.

“That said, overall cost burdens remained sharp and continued to drive a robust increase in selling charges. The rate of charge inflation even quickened slightly to a three-month high,” the group said.

“Despite falling inflows of new work, South African businesses continued to increase their employment levels in October, registering a third monthly expansion in a row.”

“The upturn came amid sustained optimism that economic conditions will improve, with projections for activity picking up from September’s five-month low. That said, the rise in job numbers was only slight and the weakest in the current growth sequence.

Due to the improving employment numbers and the number of new orders dropping, firms could clear further backlogs in their work, even if it was at lower levels than in September.

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Read: South Africa on a rollercoaster ride