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While the much published ABSA PMI index closed December 2018 off at above 50 points (above 50 points shows growth), when looking at one of the the sub indices of the PMI, namely employment, the picture is far less rosy.
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So what exactly is the ABSA PMI?
The Absa Purchasing Managers’ Index™ (PMI™) compiled by the Bureau for Economic Research (BER) and sponsored by Absa, is based on the widely used and highly regarded Purchasing Managers Index (PMI) produced by the Institute for Supply Management (ISM) in the USA. The PMI is calculated as the weighted average of the following indices (weights in parentheses): Production (0.25), New Orders (0.30), Employment (0.20), Supplier Deliveries (0.15) and Inventories (0.1).
The survey from which the indices are compiled require the respondents to indicate each month, whether a particular activity (e.g. production) for their company has increased, decreased or remained unchanged. The indices are then calculated by taking the percentage of respondents that reported an increase and adding it to one-half of the percentage that reported no change. This results in an index for which a value of 50 indicates no change in the activity, a value above 50 indicates increased activity and a value below 50 indicates decreased activity.
So 20% of the PMI is made up by employment. The graphic above shows the monthly PMI for employment from the start of 2010. And the current state of affairs shows that this indicator is at levels last seen in 2014.
The survey from which the indices are compiled require the respondents to indicate each month, whether a particular activity (e.g. production) for their company has increased, decreased or remained unchanged. The indices are then calculated by taking the percentage of respondents that reported an increase and adding it to one-half of the percentage that reported no change. This results in an index for which a value of 50 indicates no change in the activity, a value above 50 indicates increased activity and a value below 50 indicates decreased activity.
So 20% of the PMI is made up by employment. The graphic above shows the monthly PMI for employment from the start of 2010. And the current state of affairs shows that this indicator is at levels last seen in 2014.
So while the PMI might just have closed December in positive territory when looking at employment and the graphic above it is clear that the news on the employment front has not been very positive for South Africa for years on end. With the PMI being in contraction/ negative growth for the majority of months. Only a few months showed increased employment activity as based on the ABSA PMI results.
South Africa's economy is struggling to gain any form of traction in which it grows for a sustained period of time, more people are employed, more goods are produced and consumed, more people are employed to meet increased demand, they then pay their taxes and earn a living and demand goods and the cycle of expansion and growth and employment continues. This is what South Africa requires. But with relatively high interest rates, extremely high corporate and personal income taxes, not enough pro business policies, lack of foreign direct investment in South Africa the economy is literally just spinning its wheels. It grows a little for a few quarters then it declines for a few quarters, then grows a bit then declines a bit. Sadly this has lead to the country growing at low rates such as 1.1% (year on year for quarter 3 of 2018).
This while countries such as India is sitting with growth rates above 7%. South Africa is being left behind. While the rest of the world grows strongly and prospers South Africa is just stumbling along aimlessly, with politicians more concerned about their own political futures and that of their political parties that they tend to forget to focus on what is really important in South Africa. And that is growing the economy so that more and more of today's youth entering the labour market can be employed, pay their taxes, buy their goods and continue to stimulate the economy. And with 2019 being an election year we doubt we will see any real political will to implement programs and policies to growth the South African economy.
All data regarding the PMI comes from the Bureau for economic research (BER).
South Africa's economy is struggling to gain any form of traction in which it grows for a sustained period of time, more people are employed, more goods are produced and consumed, more people are employed to meet increased demand, they then pay their taxes and earn a living and demand goods and the cycle of expansion and growth and employment continues. This is what South Africa requires. But with relatively high interest rates, extremely high corporate and personal income taxes, not enough pro business policies, lack of foreign direct investment in South Africa the economy is literally just spinning its wheels. It grows a little for a few quarters then it declines for a few quarters, then grows a bit then declines a bit. Sadly this has lead to the country growing at low rates such as 1.1% (year on year for quarter 3 of 2018).
This while countries such as India is sitting with growth rates above 7%. South Africa is being left behind. While the rest of the world grows strongly and prospers South Africa is just stumbling along aimlessly, with politicians more concerned about their own political futures and that of their political parties that they tend to forget to focus on what is really important in South Africa. And that is growing the economy so that more and more of today's youth entering the labour market can be employed, pay their taxes, buy their goods and continue to stimulate the economy. And with 2019 being an election year we doubt we will see any real political will to implement programs and policies to growth the South African economy.
All data regarding the PMI comes from the Bureau for economic research (BER).
