The SA economy – some Christmas cheer

December 15th, 2017 by Brian Kantor

The incipient cyclical recovery identified in our last report on the state of the SA economy has been confirmed by the most recent data releases. New vehicle sales and the supply of cash to the economy at November month end both support the view that the economy is demonstrating resilience.

We combine these up to date, hard numbers (not based on sample surveys) to calculate our Hard Number Indicator (HNI) of the business cycle. As we show in figure 1 the HNI is now pointing higher after showing little momentum after 2014 and having moved lower in 2016. The annual change in this indicator (the second derivative of the business cycle) has moved into positive territory and is forecast to maintain this momentum.

The components of the HNI are shown below. The real money base, the note issue, adjusted for the CPI (to November 2017) has become less negative while the new vehicle sales have maintained an encouraging revival.

If recent vehicle sales trends are maintained, new vehicle sales would be running at a 600 000 unit rate at year end 2018. This would represent a welcome recovery from the cyclical trough of mid-2016 but would still leave sales well below the previous peak rates of 2006 and 2012-2014.

Sales volumes at retail level, excluding motor vehicles, have been reported for October 2017. They show that the retail sales cycle continues its upward momentum and is pointing to growth rates of about 3% through 2018. This growth will be assisted by the growth in demands for cash. Extra cash is still a very good coinciding indicator of retail spending intentions despite all the digital alternatives to cash in SA (see figure 4).

Perhaps a more important encouragement for households to spend more is that prices at retail level have hardly increased over the past few months. The retail price deflator has moved sideways even as the CPI continues its upward trend, though also at a more modest rate. Hence the trend in inflation at retail level is sharply lower and, if sustained, will prove a stimulus to spending (see figures 5 and 6). The key to the door of lower prices at retail level is the exchange value of the rand. The outcome of the ANC succession struggle at Nasrec this weekend will be well reflected in the rand and in turn in retail spending and inflation. 14 December 2017