Positive output figures bring hope
But manufacturing expansion still fails to translate into jobs
MANUFACTURING showed the strongest expansion in industrial activity since last November with output up 2.2 percent year-on-year in October from a 1.7 percent fall in September.
Data released by Statistics SA (Stats SA) showed that the output was well above expectations of a 0.75 percent gain.
Drivers
On a monthly basis, manufacturing increased 0.7 percent in October after a 1 percent drop in the previous month. Stats SA said the primary drivers behind the recovery were a 7.3 percent jump in food and beverage output and a 5.8 percent increase in iron and steel production.
Output, however, eased in petroleum, chemical, rubber and plastic products.
Jason Muscat, a senior economic analyst at FNB, said what was worrying was that manufacturing business confidence slipped 3 points to 24, suggesting that 76 percent of executives in the sector were not pleased with market conditions.
“This reading suggests further weakness in the November and December production numbers. Our outlook for the sector in 2018 is for continued weak growth in line with weak economic prospects and low business confidence,” Muscat said.
Yesterday’s figure will add to a growing sense of optimism over South Africa’s economy in the fourth quarter.
It was the second set of fourth-quarter data released this month that showed that the economy has been on a firm footing in the quarter. Last week, Stats SA said mining output increased 5.2 percent year-on-year in October, following an upwardly revised 0.3 percent fall in September.
Stats SA is expected to release the retail sales figures for October today.
Elize Kruger, an analyst at NKC African Economics, said on a seasonally adjusted basis the manufacturing sector had moved sideways over the past three years.
“The sector is not out of the woods yet, as reflected by the Absa Purchasing Managers’ Index (PMI) remaining below the break-even 50-level for the past six months, reflecting weak domestic demand conditions as well as multi-year low-confidence levels among households and corporates,” Kruger said.
The manufacturing sector was one of the main contributors to the 2 percent gross domestic product (GDP) growth registered in the third quarter. Stats SA last week said manufacturing posted growth of 4.3 percent compared with the second quarter and contributed 0.5 percentage points to GDP rate.
However, the sector has been shedding jobs and yesterday the stats agency said the industry had lost 5 000 jobs in the third quarter. The figures were released as part of the Quarterly Employment Survey which showed that South Africa’s formal non-agricultural sector shed 31 000 jobs in the third quarter this year.
Michael Ade, chief economist at the Steel and Engineering Federation of South Africa, said the decrease in employment in the manufacturing sector highlights subdued domestic demand conditions and structural challenges.
“Of specific concern is that despite the positive contribution made by the manufacturing sector towards an improvement in real GDP growth, which contributed 4.3 percent in the third quarter, the benefits did not translate to an increase in employment,” Ade said.