South Africa Inc is firing on all cylinders – for now

Gareth Stokes, FAnews Online Editor

It’s sometimes difficult to gauge how well an economy is doing. As you go about your daily life you struggle to notice whether the economy is ailing or booming. In fact – through the recent recession – the Average Joe wouldn’t have noticed anything amiss.

Say aaaahhh… Measuring economic health

If you go to your physician for a health check he’ll probably listen to your heartbeat, roll up your sleeve and take blood pressure readings, take a peak into your ears and so on… To better understand the leading indicator we have to consider the 12 components it incorporates. According to StanLib, the SARB leading economic indicator measures the following:

· An opinion survey of the volume of orders in manufacturing;

· An opinion survey of business confidence in manufacturing, construction and trade;

· Composite leading business cycle indicator of major trading-partner countries, derived form the percentage changes in each of these countries over 12 months;

· Commodity prices in US dollars for a basket of South Africa’s export commodities, using a six-month smoothed growth rate;

· Real M1 money supply (deflated with the CPI), again using a six-month smoothed growth rate;

· Prices of all classes of shares, you guessed it, using a six-month smoothed growth rate

· Gross operating surplus as a percentage of GDP;

· Number of residential building plans passed for flats, townhouses and houses larger than 80m2;

· The interest rate spread, 10-year bonds less 91-day Treasury bills

· New vehicle sales;

· Job advertisements in the Sunday Times newspaper; and

· An opinion survey of the average hours worked per factory worker in the manufacturing sector.

I felt twinges of panic on a number of these points. And my suspicions were confirmed by StanLib economist, Kevin Lings. He pointed to lower vehicle sales, fewer job advertisements and a slowdown in some of the key international leading indicators (from countries such as the US and UK) as factors weighing the indicator down. “The fact that the OECD leading indicator (and the US leading indicator) has continued to moderate on an annual basis, suggests that our leading indicator is also likely to move lower in the months ahead,” said Lings.

Some signs of improvement too

There were a number of positive contributors too. Lings says the reasonably broad range of positive factors included the forward looking components of the manufacturing data, building plans passed (especially residential), the steeper yield curve, increased international commodity prices and a higher equity market. Stronger commodity prices and a surging equity market go hand in hand thanks to the JSE’s resources bias.

If you want to run a few extra tests to determine the stresses on the local economy you can consider exchange rates, inflation and employment. The South African rand is particularly strong right now – trading around R7/$ and in equally good ranges against the currencies of our main trading partners. A strong currency has its ups and downs. Consumer price inflation, for example, has been largely kept in check thanks to lower prices for imported goods and services. The CPI number was most recently measured at 3.6%, and has been within the SARB target range of 3% to 6% for some time. Unfortunately the strong rand also acts as a drag on the economy, wreaking havoc at companies generating revenues offshore.

All clogged up with bad cholesterol

South Africa’s “bad cholesterol” stems from its employment statistics. Month after month Statistics SA releases disappointing numbers – and that’s despite their attempts to gloss things over by increasing the number of disillusioned job seekers – thereby keeping the official unemployment number pegged at around 25%. It’s really quite academic – the country is short a few million jobs! And that’s despite government doing more than its fair share of hiring. An answer tabled in parliament recently indicated the country had approximately 1.3 million public sector workers. That’s far too big a slice of the employment cake.

Editor’s thoughts: I enjoy delving into the monthly economic statistics; but I usually take them with a pinch of salt. The best way to determine what’s happening in the real world is to take a trip to your favourite shopping centre and spend a couple of hours watching the goings on. Do you think the economy is firing on all cylinders right now? Add your comment below, or send it to gareth@fanews.co.za