AN ANALYSIS OF THE RELATIONSHIPS BETWEEN THE PURCHASING MANAGERS’ INDEX (PMI), ECONOMIC GROWTH AND EMPLOYMENT IN THE MANUFACTURING SECTOR IN SOUTH AFRICA

Year 2017, Volume: 9 Issue: 2, 66 - 82, 01.06.2017

Thomas Habanabakize Daniel Francois Meyer

Abstract

Employment growth in the South African economy has been dismal, and
unemployment has been gradually increasing since the 2000s. The high rate of
unemployment at more than 27 percent, is mainly due to weak gross domestic
product (GDP). The purpose of the study was to analyse the relationships between
the purchasing managers’ index (PMI), economic growth and employment in
manufacturing sector in South Africa. The study employed time series data from
the first quarter of 2000 to the fourth quarter of 2016. The results of the Correlation
analysis indicate significant positive relationships between the variables. Using
Bounds test for co-integration, the results indicated that a long-run relationship
exists between the variables. A 1 percent increase in GDP could lead to a 0.30
percent increase in employment in manufacturing, and a one percent increase in the
PMI could result in a 0.37 percent increase in manufacturing employment. In the
short-run, only GDP and not PMI is a significant predictor of employment in
manufacturing. Based on the results from the Granger causality test, a bi-directional
causality was found between manufacturing employment and PMI. From the results
it can also be concluded that the PMI is still a reliable leading indicator of macroeconomic
conditions. A key strategy that can improve employment in the South
African economy would be to enhancement economic growth and the promotion of
the manufacturing sector by means of incentives.

Keywords

economic growth, employment, manufacturing, purchasing managers’ index, South Africa