Information for September 2013 on new vehicle sales and the supply and demand for notes issued by the Reserve Bank has been released. These two very up-to-date hard numbers make up our Hard Number Index (HNI) of the immediate state of the SA business cycle.
These indicate that the pace of the economy is little changed from that of the previous month. The SA economy, according to the HNI, is still growing but the pace of its forward momentum, modest enough as it is, has stalled.
Vehicle sales of 54 281 new units in September were nearly 2000 units fewer than those of August 2013; but when measured on a seasonally adjusted basis sales declined by a lesser 700 units. A time series forecast indicates that by this time next year, the industry will be supplying units to the SA market at an annual rate of 632 390 units, slightly down on the current annualised rate of 649 400 units. The strike action in the motor industry in September appears to have affected export volumes – these were down sharply from the previous month, more than sales made at retail level. No doubt inventories, supplemented by imports, kept sales going with the influence of any supply disruptions postponed.
Given the recent stability of the rand, though at lower levels, it may be presumed that sales aimed at pre-empting expected price increases would have been less of an influence. Low financial charges by banks eager to lend, secured by the vehicles themselves, no doubt remained a positive influence on sales volumes.
The most important influence on sales over the next 12 months will be the direction of interest rates. Clearly the showrooms, as much as all retailers, would appreciate lower, not higher, interest rates that the weak state of the economy surely justifies. As somebody told me many years ago when asked about the determination of the price of a new car: “How long is a piece of string?” What you pay for a new vehicle is a mixture of financing charges, estimated residual values as well as the prices on the lists in car magazines. The pricing of a cell phone call and the telephones used to make them – subject to regulation of some of the charges cell phone companies levy on each other – are as difficult to understand and predict. The presumption that a reduction in some regulated charge made by cell phone companies will lead to an equivalent reduction in company revenue, is much too simplified a view of price-setting behaviour.
The supply and demand for Reserve Bank cash (the other half of the HNI) continues to grow at a strong but also declining growth rate, as we show below. This demand for cash reflects in part informal economic activity. The forecast of real growth of slightly below year on year 4% this time next year is again consistent with stable, but unsatisfactorily slow growth in household spending. On this evidence there is no case at all for an interest rate increase in SA. An increase would slow down growth further and would have no discernable influence on the inflation rate that will take its cue from the exchange rate that, as we have often argued, is beyond the control of the Reserve Bank. Rather, an interest rate cut is called for to sustain growth in spending and such growth is likely to attract foreign capital to support the rand and improve the outlook for inflation.
