Sources of employment: the shifts in the labour market
Employment in the formal non-agricultural sectors of the economy continued to improve in 2Q23, adding around 40 000 jobs or 0.4% q/q. While jobs were created in community and business services, manufacturing, transport, and trade shed jobs. Over 100 000 jobs have been created compared to a year ago, a 1.0% increase. However, just as many jobs have been lost since the pre-pandemic 2Q19 level and the recovery in employment remains incomplete. Total gross earnings also lifted by 0.4% q/q but are 5.4% higher than a year ago and have firmly exceeded 2Q19 levels by 17.1%. While the headline figures clearly show a speedy recovery in earnings relative to jobs, there are some nuances at the sectoral level. Here, we highlight some interesting developments.
Compared to 2Q19, only mining, manufacturing and community services have added jobs. The largest contributor has been community services, with employment 6.6% higher than pre-pandemic levels. Provincial government has added over 200 000, a lift of 21%, highlighting the impact of the Presidential Youth Employment Initiative and related temporary job creation. While this initiative should enhance the employment prospects of trainees, a broad-based increase in investment and economic growth remains key to translating this training into stable employment and more meaningful participation in the economy. In the mining sector over 15 000 jobs (3.3%) have been added in non-gold mining. Over time, the potential for some of these primary sector businesses to create jobs should be constrained by falling mineral deposits, rising input costs, and shifting global demand. However, some will be supported by efforts to shift towards net zero carbon emissions, and it is important that labour is geared to take advantage of these shifts. Within the manufacturing sector, the production of food, chemicals, electrical and transport equipment has added employment, despite continued infrastructure constraints. Nevertheless, the overall job growth is muted at 1.7%. On the opposite end, over 100 000 jobs have been lost in construction and trade, highlighting weak demand and growing consumer pressures.
Looking into earnings, all sectors, bar construction as well as transport, storage, and communication, show robust nominal earnings growth relative to pre-pandemic levels. Within the lagging sectors, compression has been experienced in civil engineering and air transport, but the recovery in tourism as well as improved sentiment and activity in the civil and building industries could eventually drive healthier outcomes. Inflation-beating wage growth has been experienced in mining and manufacturing, with inflation of 21.7% between 2H19 and 2H23, while the services sectors have experienced average real wage decline. The post-pandemic cyclical recovery and jump in commodity prices would have supported earnings in mining and manufacturing, but the turn in global activity and consumer pressures present important headwinds.
While the productive sectors of the economy have shown resilience against ongoing infrastructure challenges, consumer headwinds related to sticky inflation and tighter financial conditions should slow consumer spending in the near-term. Accounting for 60% of demand, an ailing consumer suggests overall weak economic growth this year. This will likely impede employment prospects and weigh on wage growth, which will be exacerbated by the lift in operating costs that should restrain profitability and wage bargaining. Over the longer term, policy certainty, structural reform, and continued investment in alleviating productivity constraints should usher in more robust economic growth and support the rate of employment growth that is suitable for the growth in the population.
Week in review
The leading business cycle indicator increased slightly by 0.1% m/m in July after increasing by 0.2% m/m in June. The increase was broad-based, with six out of ten constituent variables recording monthly increases. The largest positive contribution emanated from an acceleration in the trend growth rate of job advertisement space and an increase in the average hours worked per factory worker in the manufacturing sector. Meanwhile, the largest negative contributions were from a decrease in the US dollar-denominated index of South Africa's export commodity prices and a deceleration in the trend growth rate of the number of new passenger vehicles sold. The leading indicator continued declining year-on-year, reflecting sustained prospects of near-term economic weakness.
The Civil Confidence Index increased by two index points to 43 in 3Q23, reflecting sustained improvement in the business mood of civil engineering contractors. At 43 points, the index was at its highest since September 2016, when it registered 52. It was also 19 points higher than the same quarter last year. Improved confidence was underpinned by a sustained rise in construction activity, particularly related to renewable energy investment and tendering activity in roads and water infrastructure. In addition, lower tendering competition has also underpinned improvement in sentiment, with the index measuring tendering price competition at its lowest since 2014. The better confidence outcome suggests a continued, albeit slow, improvement in the annual gross value added by the construction sector in the third quarter.
Producer inflation climbed to 4.3% y/y in August, faster than the 2.7% y/y for July and our expectation of 3.9% y/y. Monthly pressure was 1.0%, stronger than the 0.2% a month before, reflecting a 1.2% and 2.4% monthly increase in petrol and diesel prices, respectively. Prices of metals, machinery and computing equipment also exhibited monthly pressure of 0.8%, paper and printed product price pressure was 1.2%, transport equipment was 0.6%, and textiles, clothing and footwear prices was 1.5%. Manufactured food product prices deflated by 0.2% m/m but could not counteract the monthly pressure from other major categories. Nevertheless, the annual disinflation in food products continued, measuring 5.6% y/y in August from 5.8% y/y in July and a peak of 16.4% y/y in September 2022. This broadly reflected slower meat inflation and sustained deflation in the prices of oils and fats. Notably, intermediate producer prices (i.e., prices of goods as they enter the production process) declined 0.5% y/y in August, following -0.1% y/y in July, and a peak of 23.1% y/y in November 2021.
Private sector credit extension (PSCE) expanded by 4.4% y/y in August, reflecting a moderation from the 5.9% y/y expansion in July. This broadly underscored a slowdown in corporate credit growth to 3.2% y/y from 5.7% y/y. Household credit growth also moderated to 5.8% y/y from 6.0% y/y. Within corporate credit, growth in mortgage advances decreased to 4.9% y/y from 5.8% y/y, general loans and advances to 2.6% y/y from 5.4% y/y, overdrafts declined by 0.3% y/y from 10.9% y/y growth, and leasing finance remained in contraction for the ninth successive month. There was a 6.9% y/y growth rebound in corporate credit cards from a 1.3% y/y contraction, while corporate instalment sales credit remained robust at 16.6% y/y from 15.5% y/y. Within household credit, growth in mortgage advances moderated to 5.1% y/y from 5.3% y/y, reflecting continued moderation from a peak of 7.1% y/y in November 2021. Households' instalment sales credit growth was 7.4% y/y, from 7.6% y/y in July, while leasing finance remained robust at 15.2% y/y compared to 13.9% y/y in July. Growth in household general loans and advances fell to 5.6% y/y from 6.4% y/y, reflecting a sustained moderation from a 11.0% y/y peak in January 2023, and growth in overdrafts fell to 2.8% y/y from 3.3% y/y in the previous month. Credit card growth remained solid at 9.1% y/y compared to 9.0% y/y in the previous month. Overall, the general slowdown in PSCE growth is consistent with restrictive monetary policy, lower demand for credit and cautious supply of credit by lenders. The SARB's Quarterly Bulletin, released yesterday, indicated that households' debt service cost (financing cost of existing debt) increased to 8.8% of disposable income in 2Q23 from 8.4% in 1Q23. YTD financing of existing debt has expanded enormously by 34.6% in 1H23, reflecting an increase in debt stock and a cumulative 475bps interest rate lift during the current hiking cycle.
Week ahead
The Absa manufacturing PMI for September will be released on Monday. The PMI improved to 49.7 index points in August, from 47.3 points in July, but remained in contractionary territory. This improvement was driven by the business activity index which increased by almost 12 points to 50, reversing the nearly 11 points shed in July. This suggests that activity was no longer contracting in the month, but neither was it growing. Furthermore, new sales orders continue to reflect weak demand and delivery times are lengthening as disruptions to transport continued - such as the taxi strike in Cape Town. Longer delivery times push the index higher and can be misconstrued as an indication of strong demand, but because they are a result of supply issues, the overall lift in the index should be read with caution. Lastly, higher diesel prices should also weigh on the sector, adding to constraints in expanding employment.
The Naamsa new vehicle sales data for September will also be released on Monday. Volume sales recorded 45 679 units in August, a 4.8% m/m (not seasonally adjusted) lift but 3.1% fall relative to a year ago. The new passenger car market led the annual decline, falling by 6.7%, while light commercial vehicle sales recorded growth of 2.7%, medium commercial vehicle sales grew by 0.3% and heavy truck sales by 10.3%. A constrained consumer and rising new vehicle prices point to continued weakness in passenger car sales. However, total sales will likely remain supported by the moderate replacement cycle by corporates and lower base from flood-related disruptions last year.
On Thursday, data on electricity generated and available for distribution for August will be published. Electricity production (not seasonally adjusted) fell by 3.4% y/y in July, marking 22 consecutive months of annual contraction. The decline in July was shallower than the 7.3% annual contraction recorded in 1H23. Seasonally adjusted electricity production reflected a weak start to the third quarter, declining by 2.4% m/m, following a monthly expansion of 4.2% in June. The continued decline in electricity production underscores a reduction in Eskom's energy availability factor (EAF), which at the time of writing was around 54.4% YTD, lower than the 63.2% and 59.6% recorded over the corresponding period in 2021 and 2022, respectively. In line with this, electricity consumption also weakened further at the start of the third quarter, falling by 3.1% y/y and 2.6% m/m. YTD, electricity consumption is lower by 6.1% compared to the same period last year, and is currently 52.5% of total electricity consumed in 2019.
On Friday, SA's foreign exchange reserves data for September will be published. SA's gross foreign exchange reserves declined to $62.0 billion in August, from $62.2 billion in July. The decrease reflected a lower dollar-denominated gold price, valuation adjustments given foreign currency movements, as well as government-related foreign exchange payments. These were mitigated by asset price changes.
Tables
The key data in review
| Date | Country | Release/Event | Period | Act | Prior |
|---|---|---|---|---|---|
| 26 Sep | SA | Leading indicator | Jul | 110.4 | 110.3 |
| 27 Sep | SA | Cvil Confidence Index | 3Q | 43.0 | 41.0 |
| 28 Sep | SA | PPI % m/m | Aug | 1.0 | 0.2 |
| SA | PPI % y/y | Aug | 4.3 | 2.7 | |
| SA | Non-farm Payrolls % q/q | 2Q | 0.4 | 0.5 | |
| SA | Non-farm Payrolls % y/y | 2Q | 1.0 | -0.3 | |
| 29 Sep | SA | Money Supply M3 % y/y | Aug | 8.5 | 9.3 |
| SA | Private Sector Credit % y/y | Aug | 4.4 | 5.9 |
Data to watch out for this week
| Date | Country | Release/Event | Period | Survey | Prior |
|---|---|---|---|---|---|
| 2 Oct | SA | Manufacturing PMI | Sep | -- | 49.7 |
| SA | Vehicle sales % y/y | Sep | -- | -3.1 | |
| 5 Oct | SA | Electricty production % y/y | Aug | -- | -3.4 |
| SA | Electricity consumption % y/y | Aug | -- | -3.1 | |
| 6 Oct | SA | Gross foreign reserves $ billion | Sep | -- | 62.0 |
Financial market indicators
| Indicator | Level | 1W | 1M | 1Y |
|---|---|---|---|---|
| All Share | 72,505.99 | -1.0% | -3.4% | 13.6% |
| USD/ZAR | 18.98 | 0.1% | 1.9% | 6.3% |
| EUR/ZAR | 20.05 | -0.7% | -0.5% | 15.3% |
| GBP/ZAR | 23.16 | -0.6% | -1.3% | 19.1% |
| Platinum US$/oz | 910.79 | -1.2% | -6.3% | 5.1% |
| Gold US$/oz | 1,864.87 | -2.9% | -2.9% | 12.3% |
| Brent US$/oz | 95.38 | 2.2% | 13.0% | 6.8% |
| SA 10 year bond yield | 11.01 | 4.4% | 8.3% | 2.0% |
FNB SA Economic Forecast
| Economic Indicator | 2021 | 2022 | 2023f | 2024f | 2025f |
|---|---|---|---|---|---|
| Real GDP %y/y | 4.7 | 1.9 | 0.7 | 1.1 | 1.7 |
| Household consumption expenditure % y/y | 5.8 | 2.5 | 1.1 | 1.3 | 1.2 |
| Gross fixed capital formation % y/y | 0.6 | 4.8 | 5.3 | 3.3 | 4.3 |
| CPI (average) %y/y | 4.5 | 6.9 | 5.9 | 5.1 | 4.8 |
| CPI (year end) % y/y | 5.9 | 7.2 | 5.3 | 4.5 | 4.9 |
| Repo rate (year end) %p.a. | 3.75 | 7.00 | 8.25 | 7.50 | 7.00 |
| Prime (year end) %p.a. | 7.25 | 10.50 | 11.75 | 11.00 | 10.50 |
| USDZAR (average) | 14.80 | 16.40 | 18.50 | 18.10 | 17.50 |
