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The recovery hinges on employment

09 November 2009 Gareth Stokes
Gareth Stokes, FAnews Online

Gareth Stokes, FAnews Online

Western economies rely on consumers for growth. This statement holds true in the world’s dominant economy – the United States – and to a large extent in our own pseudo-Western economy too. There are many economic measures to gauge the health of the consum

The global economic recovery will remain in low gear for as long as consumers are under pressure. FAnews Online attended an economic update by StanLib to find out when consumers will return to the fray. StanLib economist Kevin Lings concluded that the US consumers still had some catching up to do. “Consumer confidence has picked up from its low point but it has not kicked on – and that reflects mainly the unemployment situation,” said Lings. The situation is similar in South Africa.

Latest US employment statistics confirm grinding recovery

Although there are signs of improvement the real problem in the consumer space is unemployment. Thousands of jobs – and billions of rand in consumption expenditure – have been lost to recession. In July and August this year the consensus view was the world would be in trouble if the US unemployment rate crept through 10%. The October 2009 number came in at 10.2% (from 9.8% in September) – the worst level recorded since 1983. The United States has a strong focus on employment statistics due to the importance of job stability on overall economic growth. Job losses continued at pace in construction (-62 000), manufacturing (-61 000), the retail trade (-40 000) and transporting and warehouse (-18 000). Some jobs were created in health care (due to recent government focus on that sector) and in ‘temporary help’ services.

If we unpack the numbers we gain an appreciation of the decimation of jobs in the world’s largest economy. October 2009 represents the 22nd consecutive month of declines in non-farm payrolls. Since December 2007 – when the US officially entered recession – the economy has shed approximately 7.3m jobs. An average 645 000 jobs per month were lost between November 2008 and April this year! “This is the worst employment decline in the recent history of the US, said Lings, adding that it almost matched the rate of decline during World War II.

“The payroll data over the past number of months has obviously been deeply concerning,” said Lings. He noted that the welcome improvement in the rate of decline was offset by the struggling manufacturing and production sectors. Analysts are watching the weekly jobless claims for sings of employment stability. At the moment the US is still processing more than 500 000 claims per week. Although market commentators don’t expect things to get much worse, it’s going to take years before US employment reaches pre-crisis levels. Soft employment will hamper US recovery and likely have a ripple effect on other economies around the globe.

Jobs a big issue in South Africa

A snapshot of key economic data suggests the South African economy is on the road to recovery too. The South African Reserve Bank leading indicator is up five months in a row – a good leading indicator of economic turnaround. The trade account is showing signs of improvement and we’ve seen a moderate improvement in exports as global economic activity picks up. There are also strong signs that the motor industry is turning around while house prices are on the rebound too, or at least not falling as sharply! For government the big problem is going to be to balance the books going forward. Lings reckons finance minister Prabin Gordhan’s Medium Term Budget Estimates are way out where expenditure is concerned. The Treasury’s immediate problem will be revenue collection, with R82.8bn shortfall predicted in the 2008/2009 year. There is not much government can do to address this shortfall while fighting the ravages of recession.

But there’s a bigger problem facing South Africa Inc – the persistent menace of unemployment. Statistics South Africa’s quarterly labour survey shows that the economy has shed 770 000 jobs over the last year (Q3 2008 to Q3 2009). Lings believes a comprehensive employment plan would go a long way in addressing many of the country’s social ills.

Nine benefits of higher employment

More quality jobs mean:

· Improved access to healthcare: As more South Africans enter meaningful employment they are able to pay for private medical care, thus lifting the requirement for the state to implement a national health insurance solution.

· Reduce income inequality and social tension: One of the major bugbears of the so-called ‘left’ political organisation is the growing disparity between income levels of the wealthy and the poor. Instead of demonstrating for high wages to be reduced this gap can be brought down by creating new employment opportunities higher up the skills chain.

· Reduce crime: Although only anecdotal, evidence supports that a large volume of crime is due to poverty. Improved employment should reduce the burden on the criminal justice system.

· Improve access to housing: Create more employment and more South Africans will be in a position to fund their own housing. Government’s housing commitments will contract significantly and housing provision facilitated.

· Reduce pressure on service delivery: As employment increases South Africans will be able to secure their own goods and services rather than relying on handouts from the state.

· Improve retirement funding: Create more high-level jobs and the task of providing old age pensions moves from the state to the individual!

· Improve education through on the job training: South Africa’s dire education situation could be improved by creating more job opportunities too. Employers could become major players in the adult education universe.

· Broaden tax base: Government revenue swells as employment rises.

· Raise economic growth: Growing employment results in growth!

Forget the thousands of problems and solutions bandied about by government and opposition parties. Employment is the only medicine South Africa needs!

Editor’s thoughts: At his inauguration incoming President Jacob Zuma proudly declared government would create 500 000 jobs in his first term in office. As recession bites the reality is the local economy is shedding jobs at an alarming rate. South Africa has other problems too. The quality of jobs is simply not up to par. Is government doing enough to create viable quality jobs for the country’s citizens? Add your comments below, or send them to

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