Mid-life crisis with a difference
By fstimes On 3 Dec, 2013 At 07:28 AM | Categorized As Business, Columns | With 0 Comments

Cees Bruggemans

SOUTH Africa’s retail sales volumes have been effectively trading sideways since March.

In other words, minimal lift.

September was only 0.2 percent year-on-year.

Some retail areas still retain some growth momentum.

Clothing and footwear managed to rake in six percent growth and hardware merchants did 3.5 percent, indicative there was life in the rag trade and in home improvement.

Passenger car sales 4.4 percent down in October, new house building still trending mostly sideways in 3Q2013 and furniture and appliances retail sales volumes in September six percent down.

The apparent compromise for consumers is to keep buying clothes in order to sustain a sense of feel-good.

And the way to add to assets in difficult times is home improvement.

But with specialised food and beverage store sales volumes down five percent, general dealers down 0.6 percent and supposedly recession proof pharmaceuticals down one percent, the seriousness of the situation comes into focus.

Households have seen their real income growth halve these past two years, with growth still waning.

Unsecured credit lending access has been curtailed and its growth has been cooling off rapidly.

Employment growth is up statistically, but it doesn’t yell with the feel of the economy.

FNB/BER consumer confidence at -7 in 4Q2013 is in negative territory and has that sliding feeling.

Household spending tends to be a second derivative, very much a function of income, in turn determined by those that drive the productive process.

The outside world has been paying us considerably less for our export commodities, making us nationally poorer.

At home we have added insult to injury by either not producing (mining, industry strikes) or restricting our production ability through shortages (electricity, harbour and railway capacity).

Regulatory meddling, not only in mining, has directly affected the willingness of business to expand.

All these factors have weighed on business sentiment with the RMB/BER business confidence index still a depressed 43 (out of 100), keeping businesses cautious and unwilling to hire or expand much even when EM growth markets elsewhere send out daily their many siren calls to our companies to come and claim their stake.

These many push-pull factors from abroad make Jack a dull boy at home, and it shows in the numbers.

Confused, numb and bewildered, many companies and households are holding off, in the process steadily becalming the ship.

Yet the cyclical recovery potential has hardly been used up yet.

There remain ample idled resources, making sustained high non-inflationary growth possible.

The economy does not run any demand risks of overheating soon.

The cyclical expansion remains young at only 51 months of very slow steaming so far.

And so we seem to have run into a mid-cycle crisis.

Until early this year, the business cycle expansion matched the average upswings since 1990, but as the year unfolded and as we contemplate next year we seem to be starting to undershoot that average, to the point of risking terminating the upward swing of the cyclical expansion.

There is (so far) no evidence of the kind of shock events that would induce sufficiently severe spending withholding so as to push us into actual recession (two or more consecutive quarters of negative growth).

Talk about crisis risks remains rife, but so far we have only encountered robust market volatility.

It makes for mood suppression, and a more careful way of going about things, even as everybody is being egged on by the evident successes of many early movers to also try the waters abroad and get rewarded with better earnings enhancement, even after steep initial school fees, for if truth be told more fully none of these EM markets are easy to break into.

But then ours is a hardy class of happy warriors, shaped by mining camp realities at home that remain part of the business and labour DNA.

Meanwhile, our ship is becalmed and possibly still losing momentum.

Commodity prices may not have stopped falling yet (watch the impact of US policy normalisation and mild Chinese slowing as it tackles reform more seriously, even if this suggests a better payoff longer term).

The home front could generate new labour strike potential (in mining and industry, and possibly still wider), although one wonders whether key unions (AMCU) are coming to realise certain limitations on what can be achieved.

Our supply constraints are yet to lift, and regulatory meddling is, if anything still picking up speed as ideology drives policy.

The state of our confidence, as much for households, businesses and foreign investors, leaves much to be desired.

It shapes our recovery profile which is clearly being seriously stressed at a time when it should have a clear run at faster expansion.

A collective mid-life crisis with a difference.


  • Cees Bruggemans is a consulting economist at FNB. You can follow him on Twitter @ceesbruggemans or e-mail him at cees@fnb.co.za

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