ECONOMIC WEEK AHEAD: Stats SA’s quarterly employment numbers to cast light on wage growth
Producer inflation expected to keep slowing, remaining modest for the rest of the year
In a light week on the economic data calendar, the main highlights will be the Reserve Bank’s leading indicator, producer inflation and the latest job-creation numbers — all of which are likely to reflect a subdued path for the economy.
First up on Wednesday will be the leading business cycle indicator for July. In June the indicator dashed any hopes of a near-term economic recovery when it declined by 2.8%. It was the ninth consecutive month in which the indicator had posted a year-on-year decline.
The focus of the week, however, will be the producer price index (PPI) for August, to be released by Stats SA on Thursday.
Investec economist Kamilla Kaplan expects PPI inflation to have slowed for the fourth consecutive month, to 4.6% year on year from 4.9% in July, mainly due to high statistical base effects stemming from increases in the petrol price throughout most of 2018.
The good news is that this feature should continue to suppress the annual growth in the fuel component of the PPI throughout much of the second half of the year, she says.
BNP Paribas economist Jeff Schultz expects headline PPI to have dropped to 4.5% in July. He believes that in addition to base effects involving petrol, the rand’s recent resilience, coupled with weak underlying domestic demand conditions, will continue to keep a lid on producer prices for the remainder of the year.
This aligns with BNP’s outlook for consumer inflation, which it expects to remain well anchored at the midpoint of the Reserve Bank’s 3%-6% target range. If correct, this should provide scope for the Bank to ease policy rates modestly later this year and into 2020, says Schultz.
Stats SA’s second-quarter Quarterly Employment Statistics (QES), which measure employment in the formal nonagricultural sector, will be released on Thursday. The QES is likely to reflect that SA’s labour market continues to deteriorate on a trend basis.
South Africans were shocked in July when the second-quarter Labour Force Survey, which includes the informal sector and farming jobs, showed that SA’s official unemployment rate leapt to a record high of 29% from 27.6% in the previous quarter.
By this measure, 6.65-million people are now unemployed, up 455,000 on the first quarter and up 573,000 year on year.
Economists attribute SA’s shocking jobs numbers mainly to a lack of fixed-investment spending by the private sector as well as sustained low business confidence.
The QES will be especially interesting for what it says about wage growth.
“We are familiar with the story of weak job creation. But it is less appreciated that employees’ average monthly earnings have been slowing sharply, to just 3.8% year on year in the first quarter, which is negative in real terms,” says Absa economist Peter Worthington.
If this pattern persists in the second quarter, consumer spending, which underpins much of SA’s economic growth, is unlikely to recover any time soon.