South Africa’s April 2005 leading economic indicator, which is compiled by the South African Reserve Bank (SARB), rose by 1,8% month-on-month (m/m) after a 1% m/m increase in March, but was still below the December 2004 level.
Economists generally see four or more consecutive monthly declines as a warning signal of weaker growth ahead.
Of the 13 components in April, eight were positive, two were unavailable and three were negative.
The positive factors were average manufacturing hours worked, job advertising space, manufacturing orders, business confidence, the inventory/sales ratio, the interest rate spread between the money market and capital market instruments, building plans approved and real M1 money supply.
The negative factors were equity prices, commodity prices and the composite leading indicator of major trading-partner countries.
The unavailable data was for manufacturing labour productivity and the gross operating surplus as a percentage of GDP.
On a year-on-year basis (y/y), February was the recent bottom at 0,1% y/y and this increased to 0,2% y/y in March and 1,5% y/y in April and the recent peak increase of 14,5% y/y in May 2004.
The increase in the leading indicator in 2003/4 was in large measure due to the decision by the SARB to cut interest rates in June 2003 for the first time since September 2001.
The SARB then cut by a further 100 basis points in August 2003 as well as in September 2003, and continued the rapid easing with a 150 basis points cut in October 2003, and a 50 basis point cut in December 2003.
The SARB surprised the market by cutting by 50 basis points in August 2004 and by another 50 basis points in April 2005.
The last two cuts caught the markets by surprise, as on both occasions there was the unanimous view that there would be no cut before the Monetary Policy Committee decided to implement a reduction.
Forty percent of South African fund managers are uncertain as to whether the next repo rate will be up or down in the Merrill Lynch May 2005 survey, after 87% expected the next move to be up in the April survey before the South African Reserve Bank cut by 50 basis points on April 14.
The South African economy is currently in the 71st month of a record upturn, as the current upturn started in September 1999. The previous record upturn was from September 1961 to April 1965.
The SARB in March 2004 revised its leading and coincident business cycle indicators. The SARB first published business cycle indicators in 1983. These were revised in 1994 and have now been revised again.
The leading indicator has been pared down to 13 components from 21, while the coincident indicator has been cut to five from seven. – I-Net Bridge