Business just keeps getting gloomier

THE RMB/BER business confidence index underwhelmed once again. The index rose by a minuscule two points to 40 in the first quarter of this year.

Data from Stats SA showed that the economy managed to expand a mere 0.3% in 2016. Although growth should improve in the year ahead, a lack of confidence will limit the extent of the improvement.

Since 2008, the index, produced by the Bureau for Economic Research, has only been above the neutral 50 mark four times — a pattern consistent with an economy continuously treading water. The latest results indicate that only four out of every 10 respondents were satisfied with business conditions.

Business confidence edged higher in three sectors, but eased in the remaining two.

In the retail trade sector, the first-quarter increase more than countered the fourthquarter decline. Confidence also crept higher in the wholesale and motor-trade sectors, but declined in building and manufacturing.

Of concern is that, since 2015, the index has remained in net negative terrain in all but one sector: wholesale trade (where sentiment has held above 50 for 80% of the time).

Pessimism seems to be widespread. From an overly low level in the fourth quarter, confidence among retailers increased to 45 points in the first quarter. Despite the index jumping by 11 points, a majority of respondents clearly still remained unsatisfied with business conditions, and rightly so.

Growth in total retail sales volumes is showing few signs of life and, in some instances, it’s even contracting, with the rate of increase in prices slowing quickly on a broad basis. After a brief period of some relief, pressure on margins has consequently returned. Retailers of discretionary products continue to bear the brunt of consumers’ strained finances.

Despite a four-point increase, new-vehicle dealer confidence remained at a depressingly low 30. Not surprising, given the continued contraction in sales volumes and the failure of the expected fourth-quarter recovery to materialise.

Although wholesale confidence rose from 53 to 56 in the first quarter, all is not well below the surface, especially for wholesalers of consumer goods, where confidence fell into negative terrain. Sentiment among wholesalers of nonconsumer goods such as machinery, chemicals and building materials, improved notably, thus saving the day.

In contrast to retailers, newvehicle dealers and wholesalers, sentiment among manufacturers deteriorated marginally to 28 in the first quarter. Export sales volumes continued to improve, but the recovery fell short of countering the impact of persistently weak domestic demand and other uncertainties. It’s worrisome that since peaking at 51 in 2011, manufacturing confidence has been on a constant downward trend.

Building confidence declined by six points to 42 as the improvement in residential activity in the second half of 2016 fizzled out and nonresidential activity contracted even faster.

Business confidence has failed to inspire for some time, and the first quarter of 2017 was no exception; a two-point increase in the index to a stilllow 40 is hardly reason to cheer.

With the exception of a few industries which are benefiting to some extent from the revival in agriculture, mining and manufacturing exports, the overriding message from the first-quarter survey results would seem to be one of continuously weak underlying activity, with most sectors still in a holding pattern. It’s concerning that respondents continue to show little, if any, increased willingness to ramp up fixed investment as well as headcount.

Nxedlana is FNB chief economist