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Ever wondered how South Africa's manufacturing industry compares to that of the USA? From a size perspective obviously the US manufacturing industry is a lot bigger than that of South Africa's. But is the US manufacturing industry running at full speed? Or at half speed? And how does their use of total capacity compare to that of South Africa?
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So who utilizes more of available production capacity?
So who utilizes more of available production capacity? The United States or South Africa? The line chart below shows the manufacturing utilization of South Africa, as measured and published by Statistics South Africa (Stats SA) and compares it to the Capacity Utilization as calculated by the St Louis Fed in the USA.
Below a bit more background about both these measures:
South Africa's manufacturing utilization:
This statistical release contains information regarding utilisation of production capacity, total under-utilisation and reasons for under-utilisation by division and major group within manufacturing, on a three-monthly basis. Statistics South Africa (Stats SA) conducts the survey of utilisation of production capacity by large enterprises mainly engaged in the manufacturing industry.
The results of the quarterly manufacturing utilisation of production capacity survey are used to assess the degree of capacity constraint experienced in the manufacturing industry. The information in this release is a key component in the Composite Coincident Business Cycle Indicator and is used to analyse movements in gross fixed capital formation in the national accounts.
This survey covers large manufacturing enterprises, i.e. those with turnover greater than R100 million per annum ($7.46 million annual turnover) and conducting activities in - the manufacturing, processing, making or packing of products; the slaughtering of animals, including poultry; and installation, assembly, completion, repair and related work.
US capacity utilization: As taken from the St Louis FED's website
Capacity Utilization: Total Industry (TCU) is the percentage of resources used by corporations and factories to produce goods in manufacturing, mining, and electric and gas utilities for all facilities located in the United States (excluding those in U.S. territories).(1) We can also think of capacity utilization as how much capacity is being used from the total available capacity to produce demanded finished products.
Capacity utilization indexes are constructed for 71 industries in manufacturing, 16 in mining, and 2 in utilities. (1) Physical data on capacity utilization are primarily compiled from trade sources and government sources, such as the U.S. Geological Survey and the U.S. Energy Information Administration.(1) When physical data are unavailable, capacity utilization data are compiled from the U.S. Census Bureau’s Quarterly Survey of Plant Capacity Utilization, which provides data for almost 70 percent of total industry capacity.(1) Additionally, the capacity index is developed on a monthly basis, designed to be consistent with the production index.(1)
According to the Board of Governors of the Federal Reserve System, the capacity index tries to conceptualize the idea of sustainable maximum output, which is defined as the highest level of output a plant can sustain within the confines of its resources. The Board of Governors defines the seasonally adjusted capacity utilization rate as the output index divided by the capacity index. The capacity utilization rate can also implicitly describe how efficiently the factors of production (inputs in the production process) are being used. (1) It sheds light on how much more firms can produce without additional costs. Additionally, this rate gives manufacturers some idea as to how much consumer demand they will be able to meet in the future.
The Federal Reserve strives to construct a capacity index consistent with time by using different relevant data sources.(1) Developing an index that is reasonable given the time period is the primary aim for this index, but there are still some difficulties. Extensive technological and structural changes have and will continue to occur, affecting the degree of tightness the Federal Reserve index of capacity utilization will represent.(2) In addition, each series of capacity utilization is flawed by commission; therefore, they should be used with caution.
South Africa's manufacturing utilization:
This statistical release contains information regarding utilisation of production capacity, total under-utilisation and reasons for under-utilisation by division and major group within manufacturing, on a three-monthly basis. Statistics South Africa (Stats SA) conducts the survey of utilisation of production capacity by large enterprises mainly engaged in the manufacturing industry.
The results of the quarterly manufacturing utilisation of production capacity survey are used to assess the degree of capacity constraint experienced in the manufacturing industry. The information in this release is a key component in the Composite Coincident Business Cycle Indicator and is used to analyse movements in gross fixed capital formation in the national accounts.
This survey covers large manufacturing enterprises, i.e. those with turnover greater than R100 million per annum ($7.46 million annual turnover) and conducting activities in - the manufacturing, processing, making or packing of products; the slaughtering of animals, including poultry; and installation, assembly, completion, repair and related work.
US capacity utilization: As taken from the St Louis FED's website
Capacity Utilization: Total Industry (TCU) is the percentage of resources used by corporations and factories to produce goods in manufacturing, mining, and electric and gas utilities for all facilities located in the United States (excluding those in U.S. territories).(1) We can also think of capacity utilization as how much capacity is being used from the total available capacity to produce demanded finished products.
Capacity utilization indexes are constructed for 71 industries in manufacturing, 16 in mining, and 2 in utilities. (1) Physical data on capacity utilization are primarily compiled from trade sources and government sources, such as the U.S. Geological Survey and the U.S. Energy Information Administration.(1) When physical data are unavailable, capacity utilization data are compiled from the U.S. Census Bureau’s Quarterly Survey of Plant Capacity Utilization, which provides data for almost 70 percent of total industry capacity.(1) Additionally, the capacity index is developed on a monthly basis, designed to be consistent with the production index.(1)
According to the Board of Governors of the Federal Reserve System, the capacity index tries to conceptualize the idea of sustainable maximum output, which is defined as the highest level of output a plant can sustain within the confines of its resources. The Board of Governors defines the seasonally adjusted capacity utilization rate as the output index divided by the capacity index. The capacity utilization rate can also implicitly describe how efficiently the factors of production (inputs in the production process) are being used. (1) It sheds light on how much more firms can produce without additional costs. Additionally, this rate gives manufacturers some idea as to how much consumer demand they will be able to meet in the future.
The Federal Reserve strives to construct a capacity index consistent with time by using different relevant data sources.(1) Developing an index that is reasonable given the time period is the primary aim for this index, but there are still some difficulties. Extensive technological and structural changes have and will continue to occur, affecting the degree of tightness the Federal Reserve index of capacity utilization will represent.(2) In addition, each series of capacity utilization is flawed by commission; therefore, they should be used with caution.
Utilization of available capacity, SA vs USA
The line chart below shows the capacity utilization for both South Africa and the United States. What is interesting to note is the fact that South Africa's utilization of available capacity has been consistently higher than that of the USA. Utilization in South Africa is also far more stable than that of the USA, with the capacity utilization in the USA being prone to large variations. During the peak of the financial crises in 2009, South Africa's utilization was sitting at 78% what that of the USA dipped to just above 67%.
While South Africa's use of available production capacity has struggled to recover to post financial crises levels of around 86%, the US utilization of available capacity is near pre financial crises levels. With it making a strong recovery from the 67% level reached in 2009 to around 78.3% currently
While South Africa's use of available production capacity has struggled to recover to post financial crises levels of around 86%, the US utilization of available capacity is near pre financial crises levels. With it making a strong recovery from the 67% level reached in 2009 to around 78.3% currently
So for South African's below the main reasons provided by manufacturers for the under utilization of available production capacity:
Basically there just isn't enough demand in South Africa to force manufacturers to use more of their available production capacity to produce more goods. Just adding to the heaps of proof that South Africa's economy is stuck in a rut, and has been for years.
- Raw materials: 10.5%
- Skilled labour: 5.3%
- Semi- and unskilled labour: 1.1%
- Insufficient demand:61.6%
- Other reasons:21.6%
Basically there just isn't enough demand in South Africa to force manufacturers to use more of their available production capacity to produce more goods. Just adding to the heaps of proof that South Africa's economy is stuck in a rut, and has been for years.