There has been an array of economic data this week, with a growth in employment – but also a growth in unemployment (due to more job seekers entering the market). We also saw a small increase in the Purchasing Managers’ Index (PMI) and in Consumer Confidence. So what does it all mean?
Comments from our experts……
Sizwe Nxedlana of FNB:
Having slumped to a 9-year low of -7 in 1Q2013, the FNB/BER CCI rebounded to +1 in 2Q2013. Consumer confidence levels improved across all income and population groups. The 1Q2013 CCI outcome of -7 was at an even more depressed level than the low of -4 registered during the 2008 global financial crisis (in 4Q2008), and at a similar level compared to the reading of -6 recorded in 1Q2008 during the load shedding period. There were legitimate concerns about further labour disruptions and possible load shedding in the 1Q 2013 but the worst case scenario has not come to pass. Accordingly, we interpret the improvement in 2Q2013 as partly reflecting a correction from an overly negative 1Q2013 result. Further, the improvement in consumer confidence does correlate with better growth in retail sales and new vehicles and resilience in the labour market in recent months. According to the Department of Trade and Industry, the growth in new passenger car sales rebounded from 3.2% y-o-y during 1Q2013 to 8.6% y-o-y in 2Q2013. Similarly, retail sales volumes also surprised on the upside, with data from Statistics South Africa showing that the growth in retail sales volumes jumped to 6.2% y-o-y in May, up from 3.0% y-o-y in 1Q2013 and 2.0% in April 2013. Further, employment increased by 100,000 in 2Q 2013 following an increase of 44000 in 1Q 2013.
At current levels consumer confidence is still well below the post apartheid average of +6 index points – and is in our view a more accurate reflection of what we are witnessing, which is a significant moderation – but not a collapse – in household spending and economic growth.
Luke Doig of Credit Guarantee:
I would tend to agree with the FNB/BER’s comment that the improvement in the Consumer Confidence Index to +1 in Q2’13 was partly a correction to the overly-negative reading of -7 in Q1’13. But this does not indicate that consumers are out of the woods – although it has to be added that retail sales and Final Consumption Expenditure by Households is still growing in real terms.
Given that the average level of the Kagiso PMI for the first 6 months of 2013 was 50.8, it is reassuring to see the 4th-consecutive monthly rise to 52.2 in July. This does not imply that the manufacturing sector is experiencing rapid expansion and the sub-50 reading for employment remains concerning. As noted, input costs are increasingly becoming a larger worry for manufacturers
The tick up in unemployment to 25.6% in Q2’13 encapsulates the challenges facing the economy. Unfortunately it is unlikely to fall substantially in the years ahead until the authorities admit to the dysfunctional state of affairs that exists in many areas of primary and secondary education.
Coenraad Bezuidenhout from the Manufacturing Circle:
Although there is no marked trend in a particular direction at present, the Kagiso Purchasing Managing Index being above 50 for the fourth month in a row is certainly confirmation of the Manufacturing Circle’s contention that manufacturing in South Africa is currently consolidating. This consolidation is being supported by a more competitive rand, which helps to alleviate margin squeeze, promotes investment in efficiency and the maintenance of employment (for which the PMI even indicates a slight improvement in outlook). It is also being bolstered by supportive industrial policy, which particularly through the Automotive Production and Development Programme (APDP), the Manufacturing Competitiveness Enhancement Programme (MCEP) and the government’s local procurement programme is gaining some marked, if uneven traction. For this, Minister Rob Davies and his department deserves some credit. On the downside, administered price increases and security of supply for particularly energy and water have had a cumulative impact for manufacturing price inflation, which explains both recent PPI figures, as well as the increase in the price component of the index (from 82.2 to 88). These price increases had to be fed through at some point. Manufacturers facing competition from unfairly incentivised imports would have held off for as long as they could. While it differs for manufacturing categories, there are no warning signs at present that drawbacks of the weaker rand are outweighing the benefits. Analysis to this effect is at odds with what is at present being relayed by broader manufacturing. Further downside risks remain in the teetering global recovery, the weakening momentum of domestic spending and the negative impact that protracted and violent strikes in upstream sectors such as agriculture and mining could have. In addition, there are also significant concerns in respect of our trade relationships with established markets such as the EU and the United States, where there is still untapped potential. Addressing these challenges will require grasping the nettle at a political level. In relation to this the Manufacturing Circle can only again echo the important warning levelled by Reserve Bank Governor Gill Marcus yesterday for decisive leadership, for political certainty and a more conducive labour environment.
While the numbers have some upbeat elements, unemployment remains a big worry, as does the reminder from Gill Marcus that with the expected GDP growth rate of 2%, we are not going to see any meaningful job creation.
Tweet of the Day:
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