The State of the SA Economy in October 2014
Two up-to-date indicators of the state of the economy are now to hand. New vehicle sales in October as well as the cash in circulation at the October month end are now known. As we show below, new vehicle sales have held up very well in 2014. It appears that the sales cycle has turned up, indicating that if recent trends continue the industry might look to improved sales in 2015, which would be close to the record ales volumes achieved in 2006.
The key to vehicle sales will be the direction of interest rates that show up in leasing or finance charges. These can be more important than list prices that to some degree respond with long lags to the exchange value of the rand. Vehicle sales, when made directly to households, form part of consumption spending in the national income accounts. When made to firms that lease or rent cars to households or other firms, they are defined as capital expenditure. Sales in October to car rental companies were particularly strong as were sales of new heavy vehicles. The manufacturing sector and trade account of the balance of payments will be encouraged by the record export volumes of 32 165 units, equivalent to 54% of the new units delivered to the local market.
The other hard number for October, the value of notes and coin in circulation, also held up in October and may also suggest something of a trough in the cash cycle when growth is considered in nominal or inflation adjusted real terms. The Reserve Bank will always supply the banks with enough cash to meet their customers’ demands for cash. Cash is demanded for spending and so the cash supply has always provided a good reflection of household spending intentions. Because it is such an up to date statistic, it serves well as a leading indicator, leading other much more difficult to collect data releases.
We combine these two up-to-date hard numbers, vehicle sales and the real cash supply, to form our equally up-to-date Hard Number Index (HNI) of the state of the SA economy. As we show below, the HNI supported by a modest turn about in vehicle sales and cash, is also holding up. The HNI suggests that the positive (though slow) forward momentum of the economy (numbers above 100 indicate the economy is growing) was maintained in October 2014 (see below where a comparison with the Reserve Bank Indicator is also made).
This indicator also suggests that the economy had not slowed down by July 2014. Hopefully the momentum of the economy will not be slowed by increases in short term interest rates. The time for such increases should only be when the economy has clearly picked up a strong forward momentum – not to be expected until well into 2015.
