Silver lining for employment in South Africa

Despite private South African businesses scaling back output and inventories in September, they were able to increase employment numbers.

The latest S&P Global South Africa Purchasing Managers’ Index (PMI) – a gauge providing a snapshot of operating conditions in the private sector economy – decreased from 51 in August to just below the 50.0 no-change mark at 49.9 in September

The 51 in August was the first improvement in operating conditions for six months, but the latest reading has indicated a slight stagnation.

Total output in the private sector dropped back into decline in September after Agusut’s data signalled the first expansion in a year. Panellists said that output was reduced due to increased load shedding and high material costs.

However, this contraction was modest and far slower than the ones registered from March to July.

That fall in output was somewhat lessened by the move towards stability on the demand side. New order volumes only saw a slight drop from August.

Although inflation and load shedding continued to weaken sales, and export orders were hit by weak external demand, companies said that they saw a recovery in new work amid customer gains.

Wholesale and retail were the only sectors to see an outright upturn in new business.

“Stable demand conditions gave firms additional impetus to raise employment, with the latest data indicating job creation for the second month running,” S&P Global said.

“Firms often added to their workforces as part of efforts to get outstanding work levels under control, which duly fell for the first time since June.”

However, the renewed downturn in output did affect purchasing trends, with input buying dropping for the sixth time in seven months.

Companies also decided to cut holding costs, which, along with lower input requirements, led to a slight drop in inventory levels.

Delivery times were also hit hard by increased load shedding and port delays during the survey period.

Several cost-cutting measures also had to be introduced following a sharp rise in business costs in the private sector.

“Companies indicated that rising fuel prices and sustained currency weakness were the main drivers of inflation, although hiring efforts and salary demands underpinned a solid increase in wage costs,” S&P said.

“Over a fifth of surveyed firms saw their expenses grow, resulting in the fastest overall increase in costs since May.”

Output charges were thus raised once again in September as firms tried to pass through higher costs onto their customers.

Outlook

Looking ahead, businesses were less optimistic about future activity for the second straight month in September, with the level of confidence dropping to the weakest level since April.

Positive output forecasts were based on the hope that household spending and economic conditions would continue to recover.

“Eskom’s projection that load shedding will be capped over the summer provides additional hope that businesses will be able to rebuild new orders and activity as capacity constraints ease,” David Owen, Senior Economist at S&P Global Market Intelligence, said.

“Headline inflation is also on the way down, slipping to 4.7% in July.”

“That said, PMI data suggest that cost pressures are still severe, with fuel and import prices particularly taking their toll. Output charges also rose steeply, indicating a degree of price stickiness that will continue to feed through to consumers.”

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