The Reserve Bank announced its note issue for January this morning. This enables us to complete our Hard Number Index (HNI) of the immediate state of the SA economy. Our HNI combines unit vehicle sales with the note issue (adjusted for inflation in equal weights) to provide a very up to date indicator. We compare trends in the HNI with the Reserve Bank coinciding indicator of the state of the business cycle, although this has only been updated to October 2010. Three months can be a very long time in economic life.
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According to the HNI the recovery of the SA economy is now very well intact. The HNI and its growth suggest that the forward momentum of the economy (that is, its positive growth) is being maintained at a robust pace. By our calculation the turning point in the business cycle, when the economy began to grow again, occurred in late 2009 or early 2010.
On the release of Naamsa data for new unit vehicle sales in January 2011 we pointed to the renewed surge, obvious since November 2010, in seasonally adjusted vehicle sales. December and January are usually slow months for the motor dealers, but this proved not to be the case this time, with strong growth shown in both months.
Note issue is a very good indicator of the state of demand in the economy, since it gives a picture of the supply of notes for the purpose of facilitating spending intentions. It has the great further advantage, with vehicle sales, of being a very up to date indicator and not subject to sampling error.
The nominal value of notes in circulation has picked up momentum, but when adjusted for lower inflation a clearer stronger trend emerges. Combined with strong vehicle sales this growth in the note issue has been more than enough to take the HNI Higher.
The quarterly trend in vehicle sales and in the note issue (both real and nominal) indicates a strong pick up in vehicle sales and also a good recovery in the demand for and supply of notes, with a quarterly growth rate of close to 10% a year.
Retail sales updates released by the General and Food retailers confirm the strength in the HNI. Bank credit numbers indicate perhaps less robust growth and the employment numbers, for what they are worth, do not reveal any renewed strong appetite for hiring by the formal sector or demand for bank credit. The supply of bank credit to the public is however growing again growing at about a 7% a year trend rate.
But the strong demand for credit from retailers indicates that the SA household has recovered some of its appetite for spending and borrowing. Bank credit may well play catch up with other lenders applying the benefits of their strong balance sheets with fewer inhibitions. Brian Kantor