While the manufacturing sector slowed its overall investment during the second quarter of the year, there are indications of a recovery in the third quarter, new data released by the Manufacturing Circle suggests.

The latest Manufacturing Composite Investment Tracker (MCIT) shows continued – albeit decelerated – investment by the sector into the plant and equipment, research and development and human capital subindices, with the composite index dropping five points to 58 during the quarter under review.

The second quarter composite index decline from 63 in the first quarter was attributed to the property and inventory categories.

A level above 50 means expansion in enterprise investment by the 50 enterprises surveyed, while a drop below the 50-point mark means a contraction in investment.

The MCIT forecasts overall growth in the third quarter to rise to the level of 61 index points, indicating foreseeable expansion in enterprise investment.

Despite indications of a more optimistic third quarter, the not-so-buoyant spending and the persistent headwinds facing the sector meant that it was ever more vital that economic growth and job creation be made a national priority.

“The country needs a one-point plan to address the crisis of the unemployment we face,” Manufacturing Circle chairperson Andre de Ruyter said, referencing government's 9 Point Plan, which has recently been supplemented by National Treasury's 14 point action plan.

“The industry stands ready to invest,” he said, but pointed out that demand needs to grow as a matter of urgency to unlock the flow.

The drop-off in consumer demand has resulted in lower capacity utilisation, delays in investment by the private sector, lower investor confidence, cancelled projects and job losses.

THE INDEX
Under the property index, investment in property expansion remained unchanged at the 50-point level, while property maintenance reported a 13-point decline to 49 points.

However, looking ahead, manufacturers indicated intentions to invest marginally in more property, with maintenance and replacement investment expected to grow to 55 points and expansion investment to 54 in the third quarter.

Spending on inventories fell ten points to 56, compared with 66 in the first quarter, indicating a slowdown as a result of muted customer demand.

This is expected to fall by another ten points to 46 in the third quarter.

In the plant and equipment category, expenditure in acquiring new plant and equipment surged from a first-quarter level of 66 points to 80 points during the quarter under review, with investment in maintenance and replacement maintained at 70 points.

Both categories are expected to record a level of 70 points in the third quarter.

While capital expenditure in research and development fell from 60 in the first quarter to 56 points in the second quarter, a third quarter recovery to 58 is expected.

In the human development subindex, salaries and wages slowed from 62 in the first quarter to 58 in the quarter under review, while training and development investment dropped from 78 in the first quarter to 61 in the quarter under review.

Overall, the MCIT forecasts an increase in overall investment in human capital to 73 in the third quarter.