Hard numbers for January 2014 in the form of vehicle sales and notes in circulation are now available. We combine them to form our Hard Number Index (HNI) – a useful indicator of the state of the SA economy because it is so up to date.
The indication from the HNI is that while the economy is maintaining its forward momentum (numbers above 100 indicate growth) the pace of growth is slowing down and is forecast to slow further in the months ahead. This lower absolute number for the HNI in January 2014 is the first decline in the HNI registered since the economy escaped from the recession of 2008-09, when the HNI as may be seen turned briefly below the 100 level.
The turning points in the HNI anticipate those of the Reserve Bank Coinciding Business Cycle Indicator consistently well, as we also show. However this business cycle indicator has only been updated to October 2013 which is a long time ago in the business of economic analysis and forecasting. It will not come as much of a surprise to observers that the pace of domestic spending in SA slowed down in January. Higher short term interest rates imposed by the Reserve Bank in late January 2014 will do nothing to encourage spending growth that at best was stalling in the final quarter of 2013.
It was the slowdown in the growth in the supply and demand for cash (adjusted for inflation) in January 2014 that dragged the HNI lower. The real money base growth cycle peaked in 2011 and has been on a more or less consistently lower trajectory since then. The forecast is for a further decline in this growth rate.
By contrast, unit vehicle sales in January 2014 held up well. On a seasonally adjusted basis unit sales in January 2014 were about 1000 units higher than in December 2013, that in turn, on a seasonally adjusted basis, were well up on November 2013 sales.
For the motor dealers, December and January are both usually below average months for selling new vehicles. The current level of sales would translate into an annual rate of sales of about 650 000 units this time next year, which would be little changed from the pace of sales in 2013. However some preemptive buying ahead of exchange rate forced increases in list prices may well have provided a temporary boost to new unit sales in December and January. A combination of a weaker rand and higher financing costs does not bode well for the new vehicle market in SA.
For motor and component manufacturers, the profit opportunity must be in export markets where prices are set presumably in foreign currencies – trade unions permitting. The opportunity for SA to lift growth rates from the currently unsatisfactory pace, must lie with increases in export volumes. The weak real rand/US dollar rate, currently about 17% below its purchasing power equivalent value compared to its 1995 value, offers the opportunity for SA producers to take full advantage of higher operating profit margins to increase export volumes and rand revenues significantly. It is up to SA management and workers to seize the opportunity to share in the operating surpluses that a weak real rand makes possible.
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