Unemployment up

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FIFI PETERS: Pre-pandemic, according to Statistics South Africa, we had 10.31 million people employed. That was the total employment number if we look at the formal sector excluding the agricultural sector.

Fast forward to now, March 2023, according to the first-quarter numbers released by Statistics South Africa, there are 9.97 million people with jobs, which speaks to the fact that the number of employed people has fallen. Simply put, [the number of] people in the unemployment line has gone up.

We’ve got Sanisha Packirisamy, an economist at Momentum Investments, for more on this. Sanisha, thanks so much for your time. So 21 000 jobs were lost in the first quarter, 97 000 jobs down year-on-year. Reflecting on the report that was released today, how did it compare to your expectations prior to its release?

SANISHA PACKIRISAMY: Thanks so much Fifi, and lovely to chat again. I think going into a very low-growth year it is to be expected that employment prospects are likely to remain muted. We’ve also seen that for every unit of GDP created in South Africa, fewer and fewer jobs are coming on board.

As companies start to streamline more, we find some companies using machinery rather than people, and mechanising processes. As a result we are finding that the economy is becoming less employment intensive.

FIFI PETERS: So, if we break it down across the sectors and look at the number of sectors at pre-pandemic levels of unemployment and the numbers that are not, according to Stats SA five out of eight industries have not returned to pre-pandemic employment levels. Do you see that [return] happening any time soon?

SANISHA PACKIRISAMY: Unfortunately in a very low-growth environment we’re unlikely to see employment growth picking up significantly. In fact, we actually think that that headline rate of unemployment – which is in Statistics South Africa’s sister labour report, the Quarterly Labour Force Survey report – is now at 32.9%, the official headline unemployment rate.

I think if we continue to grow at these muted pedestrian levels, we are likely to see that headline rate of unemployment ticking higher.

And if we look at the industries that have employment numbers below pre-pandemic levels, they are all concentrated in sectors like the trade industry. We know that the consumer is under significant pressure, [as are] the transportation and construction industries.

And again, here we’ve seen lower levels of fixed investment coming through and quite a lot of pressure on the construction sector as businesses are really under pressure to expand in an environment where demand remains relatively weak.

It’s really only your mining sector and your community services sector and your manufacturing sector [that show] a slight increase where we’ve had jobs outpacing the levels that we saw prior to the pandemic.

But if we look at the total employment, about three-quarters – according to the QES, the Quarterly Employment Statistics – comes through from trade, from business services, and then from the government sector. So, it’s really your services-oriented industries that are your job creators according to these labour surveys.

FIFI PETERS: A lot of interventions are on the table to try and create jobs. But I think the message that you have tried to emphasise is that unless the economy grows those interventions on the table will come to naught. Or do you reckon that we could have some progress from the bottom up, even if this economy is not growing?

SANISHA PACKIRISAMY: I do think there has been some level of optimism created [by] some of the government initiatives. For example, in the quarterly number the drop of 21 000 jobs – within that was actually embedded a 46 000 uptick in government workers. Of course that was then offset by a decrease in the trade and business services sectors.

Now, that increase of 46 000 actually came through from the expanded public works programme and the Presidential Youth Employment Initiative.

But I think for us to really create jobs at a larger scale we do need to see private-sector participation coming on board.

What we heard from the president in a number of [his] State of the Nation addresses is really the message that it’s not government that is the key creator of jobs in the economy – that only accounts for a fifth of jobs in the economy – it’s largely the private sector.

I think it’s really government’s role to create those enabling conditions for businesses, particularly your smaller businesses. Work by various institutions like the World Bank has mentioned that small businesses are the biggest creators of jobs in any economy.

In South Africa we know whether we are punching below our weight when it comes to the number of small businesses we have in our own environment.

FIFI PETERS: Notwithstanding the fact that the jobs picture remains bleak, it was interesting to see the amount of money that those who were employed actually took home if we look at gross earnings, look at what people are taking before the taxman takes what is due to him.

If we look at what happened in the past quarter, gross earnings have declined by 4%, although if we look at the year-on-year comparison – that’s up 5.5%. Both numbers actually say that people took home less at a real level if we factor in inflation. I just want to know what that tells you about the state of the South African consumer right now.

SANISHA PACKIRISAMY: As you mentioned, in nominal terms your earnings growth was up 5.5%, but remember that over that very same period inflation at a headline level was up 7.2%. That means that in real terms wages actually declined by 1.7%, meaning that the purchasing power of consumers has become less.

Also, we need to bear in mind that inflation at 7.2% over that period is just at a headline level for the overall economy. Inflation of course is quite different, depending on your own basket of goods and services.

And so if we look at the bottom 30% of spenders in South Africa over the past six months, inflation has been closer to 10%, whereas at the upper 30% of expenditure we have inflation that’s averaged closer to 7%.

So that’s a 3% gap in inflation between your lowest income earners and your highest income earners in South Africa. Of course that then detracts from your overall disposable income and your ability to spend on goods and services.

In terms of the state of the consumer I would say it’s a very bifurcated market at the moment. At your upper-income level, I think there’s a little more job security. Most of these consumers are facing asset-backed credit and tend to have experienced a lower level of inflation, whereas at your lower-income levels in the economy there’s a fair amount of job insecurity, [with] very high and volatile inflation playing out. These are the consumers who are exposed to unsecured credit which comes at a higher [interest] rate.

I think what we are starting to see in the consumer space is that consumers are very begrudgingly starting to take on more credit just to make ends meet, given the cost-of-living pressures.

We’ve also seen that consumers are starting to down-trade in terms of the goods and services they purchase.

I think among the consumer groups it’s really your middle-income consumers who are very pressed. Middle-income consumers also tend to use health services and education services outside the government space. That means that they have to pay for private education or private medical aid and according to Eighty20 [research consultancy] they suggest that about 70% of the disposable income of your middle-income group is now actually going towards servicing debt costs, as these are the consumers who are taking on more credit just to make ends meet at the end of every month.

FIFI PETERS: Just a quick one, Sanisha. When we listen to the Reserve Bank they talk about some of the decisions they’re taking to make sure that inflation expectations remain under control and [that] wage inflation expectations remain intact. Just looking at what has happened to wages, do you think that has been successful?

SANISHA PACKIRISAMY: I think in terms of the wages we need to split those into the public sector and the private sector. On your public-sector side, they tend to be multi-year agreements that are in place.

Sometimes those also include various allowances. So at your headline level the increase may look actually different from your take-home pay. What we’ve seen from the public sector is a slightly higher-than-budgeted increase than what National Treasury had originally pencilled into the budget.

At your private sector level, I think there’s a little more flexibility in terms of dealing with those wage increments insofar as weak economic conditions caused quite a lot of pressure on corporate profitability. As a result these companies tend to put through lower increases. I think there’s more upward pressure coming through from the public sector side, given the high level of union membership relative to what we see in the private sector.

FIFI PETERS: Okay. Sanisha, thanks so much for your detailed and thorough analysis, as always. Sanisha Packirisamy is an economist at Momentum Investments, just giving us the bleak numbers behind the jobs picture now that obtains in South Africa.

On the bright side, though, if you were fortunate enough to receive a bonus, your bonus wasn’t too shabby. In fact, in real terms, your bonus was slightly higher, given that year-on-year bonus payments increased by 13%. If you subtract inflation from that, you got a higher real bonus. That’s to say that R7.7 billion in bonuses was paid out in the past year – so not too shabby if you were fortunate enough to get one.