Mixed Economic Data

One could be forgiven at this emotional time, with the country and the world saying farewell to Nelson Mandela, for forgetting that there has been some important economic data out this week, sending mixed signals. Yesterday we saw a tiny, almost insignificant, rise in employment. Today’s data shows inflation is down and retail sales are limping along.
What do our experts make of it all?

Loane Sharpe from Adcorp (on the employment numbers):
Although, on the face of it, employment improved in the 3rd Quarter of 2013, the labour market remains weak. The number of formal sector workers was roughly flat (+0.2%) over the past year. Over the same period wages (which grew 5.8%) increased by less than the inflation rate (6.0%), with the result that workers’ real (i.e. after-inflation) monthly earnings declined by 0.6% – the first real decline in over 6 years. Real wages are an important leading indicator of employment and/or unemployment: as real wages rise, the demand for labour declines, and vice versa. It is therefore alarming that real wages increased by 5.3% above inflation in the beleaguered mining industry and by 4.2% above inflation in the challenged and highly labour-intensive wholesale and retail trade sectors. Nonetheless, real wages declined in electricity (-5.6%), transport and communication (-1.0%), financial services (-4.0%) and the government sector (-1.7%), and these declines are expected to continue during 2014 as formal sector employers economize on their use of labour by automating and mechanizing their operations. As yet we have not seen the much-predicted decline in temporary employment, despite the impending promulgation of several amendment bills. These bills seek to force employers to pay temp workers the same remuneration and benefits as permanent workers. They also seek to allow temps to make labour relations claims against, not the labour broker which was the position before the amendments, but against the labour broker and its client jointly at the CCMA and Labour Court. What we are observing in the industry is the permanent staff packages are being reduced to temps’ (lower) levels, rather than the way government intended. Also, we are observing that clever commercial contracting will allow companies to flout the new laws around the so-called joint and several liability of employers and labour brokers. We continue to expect that the impending labour law amendments will have no effective, and possibly a positive effect, on the use of large and reputable labour brokers as small labour brokers are increasingly driven out of business by the laws’ additional red tape.

Ettienne Le Roux from RMB (on inflation):
Finally some good economic news: at 5.3% in November, CPI inflation is at its lowest level in over a year. Over the month, the index essentially remained flat (up only 0.1 percentage point), with small price increases for a variety of goods and services just about being neutralised by a 2.2% drop in the petrol price, and further price declines in the case of telecommunication and certain alcoholic and non-alcoholic beverages (just in time for the festive season!). Encouragingly, core inflation (CPI minus food, petrol and energy) remained flat at 5.3%. While inflation is unlikely to dip much further, August probably marked a turning point when CPI peaked at 6.4%. Expect CPI inflation to average around 5.7% this year, easing to about 5.5% next year, which is still too close to the upper limit of the target band to expect the SARB to cut rates. Risks to keep an eye on are obviously the currency, unit labour costs and drought-like conditions that still prevail in some parts of the country.

Nedbank Economic Unit (on inflation and retail sales):
CPI Inflation:
Annual consumer inflation decelerated to 5,3 % in November from 5,5 % in October, in line with our expectations and marginally below the consensus of 5,4 %. On a monthly basis inflation increased by 0,1 %. The major contributor was food, while the drop in the petrol price helped contain the overall increase. The latest figures confirm that inflationary pressures remain relatively benign despite rand weakness. Inflation is expected to average 5,8 % this year compared with 5,7 % in 2012 and then to ease to 5,5 % in 2014.
Retail sales:
Annual growth in retail sales improved to 1,3 % in October after slowing to 0,1 % in the previous month. The rise was almost in line with the consensus forecast of 1,2 %. On a monthly basis, sales remained weak, falling by seasonally adjusted 0,4 % after dropping by 0,8 % in September. Households are likely to remain cautious of spending on non-essential items in the months ahead given the current unfavorable economic conditions. The weak retail sales numbers together with the inflation data released earlier today, suggest that demand pull inflation remains contained, but upside risks remain due to a weaker rand. We anticipate that the Reserve Bank will maintain its accommodative monetary policy stance well into 2014.

Conclusion:
Ropey retail, stagnant job growth and lower inflation do not point to a bustling economy. 2013 is going to be a poor year, and we can just hope that thinks start moving again next year.

Tweets of the Day:
Grant Lee Getkate (@GrantGetkate): Went to a tupperware store the other day. Couldn’t contain my excitement.

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