January SARB Leading Indicator shows 28th consecutve month of year-on-year decline

The year-on-year rate of change in the SARB Leading Business Cycle Indicator remained firmly negative, turning slightly more negative in January 2016 compared with December, while the more volatile month-on-month rate of change also went more negative in January.

Year-on-year, the SARB Leading Indicator declined by -4.0% in the month of January 2016. This is a slightly more severe decline than the -3.8% year-on-year decline for December.

This rate of decline continues to point to likely near term economic growth weakness, as well as a deterioration in new residential mortgage lending in the near term.

The rate of decline, on a year-on-year basis, is admittedly off its worst rate of decline of -5.8% in November 2015, but rather than suggesting a meaningful rate of improvement in near term economic growth, it is more likely to point to a slower pace of stagnation. January’s year-on-year decline in the Leading Indicator was the 28th consecutive month of year-on-year decline.

On a month-on-month basis, the Indicator declined by -0.6%, after zero % change in the prior month.

The condition of the global economy featured strongly to the negative side. Amongst the key Negative Contributors to the Indicator in January were the Composite Leading Business Cycle Indicator for SA’s Major Trading Partner Countries, along with the Commodity Price Index for SA’s Main Export Commodities.

While the Leading Indicator for SA’s Major Trading Partner Countries for January is not yet available, over last year up until December, a steady slowing in the year-on-year rate of increase in this indicator could be witnessed, as the global economy came under increasing strain, especially in the Emerging Market nations.

On the export commodity price front, too, there was little in the way of good news either. The IMF Metals Commodity Price Index is also not yet available for January, but as at December the ongoing decline, to the tune of 29.3% year-on-year in Dollar terms and -7.6% in Rand terms, continued. So for the SARB to report these prices as a negative contributor in its Indicator in January is not at all surprising.

Another key area on the “Negative Contributors” list was the Manufacturing Sector, in the form of Average Hours Worked Per Factor Worker and Volume Of Orders in Manufacturing.

The January data point of the Manufacturing Sales Orders sub-index of the Purchasing Managers’ Index reached a multi-year low of 40.9. Since then, it has recovered somewhat to 47.9 in February, although still weak at a level below the crucial 50 “expansion-contraction” dividing level. So Manufacturing may be a slightly less negative contributor to the Leading Indicator when the February number is published.

However, reportedly the most negative contribution of all came from Residential Building Plans Passed, for Flats, Townhouses and Houses larger than 80 square metres, in January. While the monthly levels of reported building plans passed can be extremely volatile, the broader trend in recent times in plans passed has been a slowing one, with year-on-year growth having reached negative territory late last year.

Finally, on the negative contributors list was the level of job advertisements. This is expected to remain a negative contributor over much of 2016, with the lagged response to 4 years of economic growth slowdown likely to be economy-wide job shedding as opposed to employment growth.

On the list of positive contributors was the rate of change in “New Passenger Vehicle Sold”.

However, this was merely because of a slower rate of decline in passenger vehicle sales compared to December, and not because of any positive growth. From a year-on-year rate of decline of -8.1% in December, this rate of decline diminished to -5.5% in January.

The rate of decline for February 2016 was slightly more again, to the tune of -6%, so there is little light at the end of the tunnel for the Vehicle Sector yet. On the “Neutral” list of contributors to Leading Indicator change was the Business Confidence Index, whose level remained unchanged at a lowly 36 (scale 0 to 100) in the 1st quarter 2016 survey.

In the mean time, the other 2 SARB Composite Indicators, namely the Co-Incident Business Cycle Indicator and the Lagging Indicator, confirm the stagnant economic situation. From November’s -0.19% year-on-year decline the Co-Incident Indicator’s rate of decline accelerated slightly to -0.4% in December. The Lagging Indicator also saw its rate of decline accelerate from -1.54% in the previous month to –2.06% in December.


The SARB Leading Indicator continues to point consistently to a very weak near term economic situation. The only possible positive is that the Indicator’s year-on-year rate of decline is a little less severe than a few months prior. But the decline goes on, as it has done for over 2 years.

The Indicator’s decline continues to suggest the likelihood of decline in the level of new mortgage lending in the near term.

From an economic growth point of view, it consistently points to ongoing weakness. Agriculture can be a “wild card”, as this sector’s output tracks weather conditions more strongly than it tracks an economic cycle. It is conceivable that, as South Africa ultimately emerges from its drought at a point, that Agriculture production can normalize, causing a short-lived rise in GDP growth that goes against key business cycle indicators for a while.

But Agriculture aside, the SARB Leading Indicator appears to justify expectations of economic weakness to ensue. And indeed, South Africa is projecting real economic growth of 0.5% for 2016 as a whole, slower than a 2015 average growth rate of 1.3%.

The components of the Leading Indicator continue to point to global economic mediocrity, and a commodity price slump, taking its toll on SA’s highly export-dependent economy. Locally, South Africa’s well-documented structural constraints, that keep SA’s long term growth potential low even in the good global economic times, exacerbate the problem.

Read more here: SARB_Leading_Indicator_22_March_2016