20091222
allafrica

Johannesburg — THE pace of SA's recovery is gaining steam with a series of forward- looking signals from across the economy pointing upwards.

The Reserve Bank's leading indicator released yesterday rose at a faster pace in October than in September.

It combines several measures, including manufacturing hours worked, new building plans approved, vehicles sold and share and commodity prices.

The leading indicator rose 4,2 points to 116,6 in October. The previous month it picked up 2,6 points to 112,4. After a patchy start to the year, the trend has been solidly upwards.

"At the beginning of the year, when it started to improve, it was mostly financial market components that boosted it, but by now it is quite broad based. That is very encouraging," said Elna Moolman, group economist at brokerage Barnard Jacobs Mellet.

"If only the share price component had risen, you would have been a little more sceptical."

The index, which economists regard as a reliable indicator of the economy in six to nine months, gives the reassurance that the recovery that started with 0,9% growth in gross domestic product in the third quarter - after three quarters of contraction - will continue.

The report makes cheerful pre- Christmas reading for an economy that has shed almost 1-million jobs this year. Any improvement will not be immediate, however, and will come only after companies feel certain enough about their prospects to start hiring once again.

"The longer you see this continuing improvement, the closer you come to the point where employment starts growing. We don't expect employment creation on a net basis before the latter part of 2010," Moolman said.

Jobs remain the key issue for the economy. While manufacturing orders, business sentiment and the interest-rate yield spread between 10-year government bonds and US 91-day treasury bills also came up positive, one measure - job ads in the Sunday Times newspaper - did not.

Of the 11 measures included in the October index reading, job ads was the only negative measure.

The number of people in work continues to fall.

Job losses in SA have become such a concern - the average worker supports five people, meaning nearly 5-million have suffered in the recession - that organised labour and business earlier this month unveiled a list of proposals to ward off further retrenchments.

Among the measures Congress of South African Trade Unions general secretary Zwelinzima Vavi and Business Leadership SA chairman Bobby Godsell suggested were reducing shareholder dividends and curbing capital expenditure.

Others also question the pace of recovery.

SABMiller CE Graham Mackay last month questioned the pace of recovery in global consumer spending, saying official reports indicated a faster pick-up than he was seeing in beer sales.

"Beer volume growth is not normally a lagging, but a current, indicator of consumer performance," he said.

Mackay was particularly cautious about prospects in the world's biggest economy.

"Of all the places we see a firmer tone, the US is not one of them," he said.

Still, there are signs of hope.

"Sales have been down approximately 10% this year - harder hit in the first quarter and improving each subsequent quarter through the year and expectations are that sales will be at a similar level to Christmas 2008," De Beers Group executive director Stephen Lussier said earlier this month.

"China and India have recovered fully from the crisis, and demand is strong there."

One component of the index measures the leading business cycle in SA's major trading partners, and the omens are good.

"It's really a broad-based improvement," Moolman said.