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Rex Column                                                                                 11 April 2017

Coming up for air    

by Cees Bruggemans          words 700

Looking back over the past quarter, the real SA data flow has a somewhat unreal character. Particularly considering the dire warnings about our future, given the idiosyncratic political behaviour of late.

Some sectors are still down, but others show gains. Not big stuff, but still enough to keep the ship afloat. And some forward looking surveys are anything but shy.


So retail was still a disaster in January, and manufacturing could have been better. But mining came off a low base. Residential building plans passed are still increasing by 3.5% yoy (nominally), and new passenger car unit sales in March were +2% yoy, but that was after a major recessionary extension of the replacement period became exhausted, operating as a kind of elastic (it can't keep extending outward forever in a normal economy – but then are we still normal, or in terminal decline following recent events?).

The retail picture gains understanding when looking at jobs & earnings. The quarterly employment statistics (for large registered employers) has been grim of late. Total formal jobs in 4Q16 was +18 000 yoy (only +0.2% gain over 2015). Gross wages was +6.2% yoy. Average monthly earnings, when adding bonuses and overtime was only +2.6% (or 2.8% when allowing for job increase). But that is way below the 6% plus inflation rate of the period! Indicative how squeezed household purchasing power has been.

Anyway, a mixed picture for 1Q17, with hints of support. This will intensify with the agricultural harvest coming off the land and accounted for, with the drought devastation slowly receding.

But the real fun is in the forward-looking indicators or surveys. The ABSA purchasing managers index for manufacturing has now been three months over 50. That suggests some lift.

Even more persistent has been the Standard bank purchasing managers index for most of the private sector economy at 50.7(50.5) and rising for seven straight months.

Equally impressive, and a major parallel, is the SARB leading indicator. Ever since mid-2016 it has been rocket-like rising, now back at 2014 levels (latest data for January).

In contrast, the RMB/BER business confidence index remains wallowing deeply in negative territory at 40, meaning 6-out-10 managers lack confidence, and have done so more or less non-stop since 2008.

The FNB/BER consumer confidence index also remains well into negative territory after a long downward slide since 2010.

One wonders what is real in all this and what unreal.

We know farming will boost national income this year, and some mining export prices (iron ore) have done very well. But the Budget in February gave us all a few haircuts, with presumably a follow through in constrained real private spending.

Nominal salary & wage gains still outstrip inflation according to income estimates (but bear in mind the employment data quoted above). The only strong credit demand is commercial, not in households which are barely advancing in nominal terms.

The rising level in property transfer duty collections since 2010, suggesting slowly rising property prices and turnover, seems to have started moderating. That was January. One wonders what coming quarters will bring.

As to the SARB, it is led by future inflation expectations and risks. While rate cuts would be welcome, junk rating and eventual changing global conditions may weaken the Rand and increase inflation anew once drought-related food price adjustments are behind us. Also, there are the SA fiscal plans ahead, as yet unclear. It should make us cautious about rate hikes as well.

The cold reality of extractive plans by government, and the rating reduction to junk by S&P and Fitch, does not promise a buoyant economy soon. Banks also are more cautious about lending money, and businesses generally appear to hold back on fixed investment. Households, too, have been shocked. It is a vicious rather than virtuous cycle that is driving us at present.

Gigaba appears as confident about future growth as Gordhan was before him, only with less reason that is apparently difficult to grasp in his circles. They seem very determined to create a Brave New World. But then many among us may feel they can Start The Revolution Without Me.

Directionless times, yet still afloat, drifting.


Cees Bruggemans

Bruggemans & Associates, Consulting Economists



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