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PEBCI Rate of Recovery Slowing
While the PEBCi continues to reflect economic recovery the rate of growth in the index appears to have begun slowing, a development that could well correspond with developments in the broader economy.
While economic recovery internationally has been characterised by growing demand and escalating commodity prices which in turn have supported South Africa’s export performance and manufacturing sector, which contributed significantly to a higher than expected level of GDP growth in the fourth quarter of 2009, the economic stimulus provided to the economy has yet to be as strongly reflected in the consumption side of the economy. Key indicators of economic activity such as money supply growth, growth in credit extension and growth in credit extended to the private sector remain at historically low levels and the annual change in real retail sales remained at -1.5 percent in February. Households remain heavily in debt which together with significant job losses during 2009 continues to negatively influence the willingness of households to spend and to utilise credit with the focus remaining on consolidating and reducing existing levels of debt. Strict bank lending criteria, while easing, also continue to limit the recovery and the rate of growth in credit extension to the private sector.
Looking ahead, however, real household disposable income reflected some recovery during the fourth quarter of 2009, a trend which in all probability will have continued into the first quarter of 2010, house prices are growing slowly, the stock exchange has performed well, both business and consumer confidence has reflected encouraging growth in the first quarter and the Reserve Bank’s leading indictor of economic activity has grown strongly, all of which auger well for accelerated recovery in consumption demand in months to come and improved levels of GDP growth.
With regard to the details of the PEBCI, thirteen components improved, one reflected decline and one remained unchanged.
The indicators that supported the PEBCI through March included growth in the trend cycle of new car sales in the metro which has bottomed out and moved into a phase of recovery, as has the trend cycle in the total new vehicle market in the country which is now also reflecting cyclical growth. The trend cycle in the real value of exports, despite the strength of the rand, is reflecting growth, as is the trend cycle in the real value of imports. The trend cycles in the real value of building plans passed in the Metro and in the value of buildings completed are also reflecting improvement, and the trend cycle in passengers arriving at the PE airport has reflected some improvement. Furthermore the PEBCI was supported by a decline in the local rate of inflation to 5.3 percent in March, and trend cycle growth in the real value of retail sales in the Eastern Cape which is beginning to reflect slow recovery. A resumption of growth on the underlying trend in the JSE all share index and in the rand US dollar exchange rate also supported the PEBCI through March. Finally the PEBCI further benefitted by strong growth in the level of consumer confidence in the Eastern Cape during the first quarter of 2010 with the index rising to 26, the highest level since June 2004.
The only indicators that reflected trend cycle decline through March was the trend cycle of the price of gold which eased marginally.
The trend cycle in the real seasonally adjusted value of manufacturing sales in the country after growing steadily for the past seven months moved sideways in February.
The Nelson Mandela Metropole Business Confidence Indicator, PEBCI, has been specifically developed to offer a service to investors, potential investors and businesses wishing to understand developments in economic circumstances in the region or to analyze the environment impacting upon existing undertakings or upon the establishment of new undertakings.
The PEBCI was modelled upon the original SACCI BCI, (which was substantially restructured during February 2001), and as such is not a ‘confidence indicator’ in the sense of asking business people how confident they feel about current or future circumstances, it is rather a composite of economic indicators that are accepted as reflecting the environment that businesses are actually experiencing and thus have the greatest bearing on the business mood. As SACCI says;
“The BCI is a market-related index that reflects not what business decision-makers are saying, but what they are doing and experiencing. It is likely that in any one month, the business mood will be influenced both positively and negatively by developments in various sectors of the economy, and the BCI seeks to reflect the net result of these influences.”
The PEBCI is a composite index tracking the performance of fifteen key economic indicators chosen from those available that are believed to best reflect the business mood in the PE / Uitenhage area.
The following indicators have been chosen for inclusion in the PEBCI:
- The rate of inflation, as measured by the Consumer Price Index for the PE / Uitenhage region;
2. The prime rate at month end;
3. The Rand/ US$ exchange rate;
4. Retail sales in the Eastern Cape;
5. The average monthly gold price in dollar terms;
6. Merchandise imports in real terms;
7. Merchandise exports in real terms;
8. The total number of new passenger cars sold in the PE / Uitenhage region;
9. The value of building plans passed in the PE / Uitenhage region in constant prices;
10. The value of buildings completed in the PE / Uitenhage region in constant price terms;
11. The performance of the Johannesburg Stock Exchange, as indicated by the JSE All Share index.
12. The RMB BER Consumer Confidence Index for the PE / Uitenhage region from the Bureau for Economic Research of Stellenbosch University.
13. The total new vehicle market in South Africa
14. Number of passengers arriving at the PE airport
15. Real value of seasonally adjusted manufacturing sales in South Africa
These indicators are all in constant price terms where applicable and are seasonally adjusted and trended using the X12 seasonal adjustment programme. The trend cycles are aligned, synchronized and weighted to reflect the relative impact of each of the indicators on business activity in the region.
As is evident from the list of time series included in the composite indicator, the PEBCI consists of both key regional statistics as well as national statistics that have a countrywide bearing on the business mood and as such have to be incorporated in a composite cycle that seeks to reflect the local business mood within a national context.
Dr Neal Bruton of RGT Smart Ltd., has compiled the PEBCI on behalf of PERCCI.
30 April 2010
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