Annual manufacturing production declines in first quarter

TO MOST readers, a single day does not mean much, but when analysing manufacturing and mining production data in the first quarter, a day can have a large impact.

Statistics SA manufacturing data, for instance, shows that February had a 3.7percent year-on-year decline.

There was, however, a day less in February this year than February last year as last year was a leap year.

For a continuous manufacturing process such as oil refining, that meant there were 3.4 percent fewer hours in February this year compared with February last year.

For a batch manufacturing process, such as food production, there were 4.8 percent fewer working days.

If one adjusts for this single day, one could easily show that instead of showing a year-on-year decline, there would have been a year-onyear increase if we knew the correct split between continuous and batch processing.

Distortion The March data has a similar distortion for working days, but as we had the same number of days in March this year and March last year, there is no distortion for continuous processes.

As last year’s Easter was in March and this year in April, there were two more working days in March this year compared with last year. This should have increased production by 10 percent yearon-year, yet Stats SA data shows only a 0.3 percent yearon-year gain in manufacturing production.

Overall manufacturing production declined by 1percent year-on-year in this year’s first quarter, and compared with the fourth quarter the drop was 3.7 percent after seasonal adjustment and annualisation.

Nedbank economists say recovery in the mining sector is encouraging.

In mining, it is not so much whether there was a single day that impacted production, but rather how did demand influence production. If there is good demand, then the price of a commodity rises, and then with a lag, production increases.

In last year’s first quarter there was poor demand, so prices were weak and production was cut back. That is why in last year’s first quarter, mining production fell by 2.2 percent year-on-year.

In this year’s first quarter, by contrast, demand has been strong, prices are higher and production grew 7.2 percent year-on-year. After seasonal adjustment and annualisation, the first quarter showed a 14.8 percent surge compared with the fourth quarter.

Manufacturing value contributed 11.9 percent last year to gross domestic product (GDP), while mining value contributed 7 percent If we add the first quarter contributions of these two sectors together, then they should result in a 9.2 percent quarterly growth rate or a positive contribution of 0.5percent to GDP growth. The remaining 81.1 percent of GDP will, however, determine whether we have an overall expansion in the first quarter or a contraction, as we had in last year’s fourth quarter.

Recession Economists will be watching as two consecutive quarters of GDP contraction are defined as being a recession.

FNB economists said the mining production data should be a strong enough performance to help the economy avert a recession.

Nedbank economists said the recovery in the mining sector was encouraging, but other statistics suggest that domestic spending remains weak and patchy.