The trend cycle of the NMB BCI continues improving slowly predominantly supported by the consumption side of the economy but with more encouraging developments emerging in the manufacturing sector.
To receive the Nelson Mandela Bay Business Confidence Index (formerly the Porth Elizabeth Business Confidence Index) compiled by Dr Neil Bruton of RGT Smart Ltd, contact the Nelson Mandela Bay Chamber of Business.
Steady improvement in the NMB BCI over the past year and a half reflects a recovery on the consumption side of the South African economy with real retail sales in the three months ended February 2011 up 6.9 percent on the same period ended February 2010. The recovery has been fueled by gains in income and household spending that have been ahead of expectations during the past year and has been further supported by an ongoing recovery in the net wealth of households in relation to disposable income. The performance of the JSE was also encouraging during the first quarter of 2011 with the all-share index, despite volatility during the period, almost testing record levels during mid-February. Business confidence recovered quite strongly during the first quarter and the Reserve’s Bank’s leading indicator of economic activity improved further during January 2011 suggesting ongoing improvements in economic growth during 2011.
The outlook for manufacturing, currently with production up an encouraging 6 percent year-on-year in February, received a further welcome boost in March with the seasonally adjusted Kagiso Purchasing Managers’ Index (PMI) climbing 2.4 index points to hit a 13-month high of 57.2.
Looking ahead, however, the inflation outlook continues to deteriorate on the back of surging global oil, food and commodity prices and the possibility of interest rates increasing during the second half of 2011 appears likely.
This possibility together with the restraint implied by very slow, marginal, growth occurring in private sector fixed investment, stalled house price growth, ongoing high levels of household debt and slow recovery in demand for credit suggests that the current rate of growth in the NMB BCI could slow through year end.
With regard to the details of the NMB BCI, the trend cycles in eleven of the sub-indices reflected improvement, only one reflected deterioration, and three moved sideways.
The indicators that supported the NMB BCI through March included the trend in the rand US dollar exchange rate which continued strengthening, the trend cycles in the real value of both exports and imports which once again reflected growth, and the trend cycle in the national new vehicle market. Furthermore, the underlying trend cycle in the real seasonally adjusted value of manufacturing continues reflecting slow growth as do the trend cycles in real retail sales in the Eastern Cape and in the real value of new building plans passed and in new buildings completed, with both of the latter reflecting very marginal improvement from a very low base. After beginning to top out in recent months the trend cycle in new car sales in the Metro once again reflects growth through March after a month of buoyant sales, and the trend in consumer confidence in the Eastern Cape also reflected growth during the month. The trend cycle in the price of gold also assisted the index.
On the downside, the only component that weighed on the index through March was the trend cycle in the local rate of inflation which has been slowly climbing for the past seven months.
The trend cycle in the real JSE all share index moved sideways through March as did the trend cycles in the prime interest rate and in passenger arrivals at the PE airport.
Alan Straton
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