Employment levels worsen for second month running

EMPLOYMENT levels worsened for the second month running in October as industrial activity in South Africa was severely affected by the metalworkers’ three-week strike.

The IHS Markit Purchasing Managers’ Index (PMI) published yesterday showed a sharp decline in activity across the private sector in October, largely caused by the strike that disrupted output and sales.

IHS said the PMI fell to contractionary levels to 48.6 points in October from 50.7 points in September, a third deterioration in business conditions in the past four months.

The index was the second-lowest in more than a year after July’s reading.

However, after recording the first uplift in four months in September, output at South African businesses fell sharply at the start of the fourth quarter.

The National Union of Metalworkers of SA (Numsa), which has more than 150 000 members in the steel and engineering industry, last month launched a protracted strike demanding an 8 percent salary increase.

The strike cost the sector R600 million in lost productivity and metalworkers R100m in lost wages.

IHS surveyed businesses highlighted shortages of raw materials as a result of industrial action, contributing again to weaker activity, longer lead times and an acceleration of input price inflation.

In response to the downturn in activity, the IHS said companies lowered their employment and purchasing in October, which could push the unemployment rate in the third quarter further than the current record 34.4 percent. IHS said manufacturing firms were the most likely to report a decline, largely due to the impact of strikes in the metal industry and raw material shortages.

Contractions were also registered in the construction, wholesale and retail and services sectors as they are heavily reliant on the metals sector. Strikes were also reported to have harmed new business levels, which fell at a solid pace that was the quickest since July.

IHS economist David Owen said businesses affected by the strikes were often unable to meet demand, leading to a solid fall in overall sales and a further increase in backlogs.

“Notably, business conditions have now worsened in three of the last four months, and improved only slightly in September.

“This will likely reflect poorly in third quarter economic data, although it is hoped that a swift recovery in November and December – given the strikes have now ended – should help South Africa to avoid a recession.”

This IHS print was in line with the Absa PMI earlier in the week, which fell further to 53.6 points in October from a downwardly revised 54.7 points in September.

Absa pointed to the strike, as well as the return of Eskom load shedding, for notable periods during the month as adverse events which also have the potential to push business activity even lower.