South Africa’s manufacturing sector entered the third quarter still in contraction, adding to concerns that an economy struggling to create jobs is failing to generate enough industrial momentum to support a stronger recovery.
The seasonally adjusted Absa Purchasing Managers’ Index fell to 46.8 points in July from 47.3 in June, remaining below the 50-point level that separates expansion from contraction. The decline suggests a weak start to the third quarter, although the headline figure masks some improvement in domestic demand and new orders.
The latest survey follows a 1.5% quarter-on-quarter decline in seasonally adjusted manufacturing production in the second quarter, according to Statistics South Africa.
The weakness matters because manufacturing is not an isolated part of the economy. It links mining, transport, logistics, trade and business investment — and, critically for a country with unemployment at 33.6%, it is one of the sectors with the potential to create jobs beyond its factory floors.
For now, that potential is not being realised.
A bad headline, with a more complicated story underneath
The July PMI headline looks bleak.
But the underlying numbers tell a more nuanced story.
The business activity index improved for a second consecutive month to 48.8, while the new sales orders index recovered much of June's decline, rising to 44.1. Both remain below the 50-point threshold, but the improvement was driven by stronger domestic demand.
Absa economist Sello Sekele said the latest release “hides more positive things than it reveals”.
The improvement in supplier delivery times is also potentially encouraging. Because the delivery-times index is inverted, a decline can indicate that supply-chain disruptions are easing. Activity at the Port of Durban has also shown signs of improvement, although Cape Town harbour continues to underperform.
But manufacturers remain cautious.
Export sales fell sharply in July and inventories declined further, suggesting companies are reluctant to stock up until they are more confident that stronger demand will last.
That leaves the sector in an uncomfortable middle ground: conditions are no longer deteriorating across every measure, but there is not yet enough evidence of a durable recovery.
The costs are easing but remain high
Manufacturers have spent much of 2026 dealing with elevated input costs and uncertainty linked to the conflict in the Middle East.
There was some relief in July.
The purchasing-price index fell, suggesting that the worst of the recent oil-price shock may have passed. But input costs remained well above pre-war levels, while a weaker rand could push up the cost of imported goods.
The improvement therefore comes with a qualification.
Lower costs can give manufacturers breathing room. They cannot, by themselves, create demand.
And demand is precisely what factories need if they are going to increase production, invest in capacity and employ more people.
The jobs signal is less encouraging
The most troubling number in the July PMI may not be the headline index at all.
It is the employment index.
The index edged up from 41.4 to 42.2, but remained deeply below the 50-point threshold. Absa said manufacturers remained reluctant to expand payrolls despite the modest improvement in activity.
Sekele said employment in the sector remained subdued and that a sustained improvement in activity would be needed before manufacturers were likely to increase hiring.
That is significant beyond manufacturing itself.
South Africa's official unemployment rate rose to 33.6% in the second quarter, from 32.7% in the first three months of the year. The number of unemployed people increased by 345,000 to 8.5 million, while employment fell by 16,000.
The manufacturing sector therefore faces a particularly important test: whether a tentative improvement in production can eventually translate into jobs.
So far, the answer is not clear.
A sector that cannot quite find its footing
The manufacturing weakness is not new.
Production declined sharply in April and May, with manufacturing output falling 2.9% year on year in April and 4.3% in May.
June brought some improvement in the annual rate, with production falling 1.7% year on year, according to the figures supplied by Stats SA. But on a quarterly basis, seasonally adjusted production still contracted.
Investec economist Lara Hodes said the June result, although better than market expectations, showed that the sector was “still struggling somewhat to gain meaningful momentum”.
The weakness was concentrated in several important parts of manufacturing.
Food and beverages production fell 3.9%, while wood and wood products, paper, publishing and printing declined 8.9%. Motor vehicles, parts and accessories and other transport equipment fell 5.3%.
The food and beverages division is particularly significant because of its weight in the manufacturing basket.
The result is an industrial sector that is being squeezed from several directions: weak or uncertain demand, elevated costs, logistics constraints and an uncertain global environment.
Why this matters for the wider economy
Manufacturing's importance extends beyond the goods it produces.
A factory buys from suppliers. It moves products through ports and along roads and railways. It pays workers, who then spend their income elsewhere in the economy. It also creates demand for business services, transport and investment.
When production weakens across a broad section of the sector, those links weaken too.
Thanda Sithole, FNB & WesBank senior economist, said manufacturing remained an important constraint on South Africa's broader growth prospects because of its links to “mining, transport, trade, business investment, and employment”.
There is a possible route to improvement.
If domestic demand strengthens, logistics constraints ease and input-cost pressures continue to moderate, manufacturing could begin to stabilise.
But the July PMI suggests companies are not yet convinced that the improvement will last.
The six-month expectations index fell to 49.3 from 56.6 in June, with renewed tensions in the Middle East and higher oil prices contributing to weaker sentiment.
That caution is understandable.
Manufacturers do not hire workers because one month's orders improve. They hire when they believe demand will be strong enough to justify the cost of keeping those workers on the payroll.
The real test is whether factories start hiring
That is what makes the employment index so important.
The July PMI contains some reasons for optimism. Domestic demand improved. New orders recovered. Production strengthened for a second consecutive month. Input-cost pressures eased and logistics conditions showed signs of improvement.
But none of that has yet translated into a meaningful improvement in manufacturing employment.
The sector's employment index remains below 50 and has done so for an extended period.
For South Africa, that is the harder test.
An economy can survive a weak manufacturing month. It can even recover from a bad quarter.
What is much harder is achieving sustained growth strong enough to persuade businesses to invest, expand production and hire.
The July numbers suggest that South African manufacturing may be moving towards greater stability.
But stability is not yet growth — and growth without jobs will do little to resolve the country's deeper economic problem.
For now, South Africa's factories are showing tentative signs of life.
They are still not hiring their way out of the jobs crisis.
yogashen.pillay@nationalmg.co.za