Govt blamed for battered economy, jobs market

Cape Town - The government was blamed on Monday for dragging down an already bruised economy, as the South African labour environment suffers declining job and wage security.

“Bad government policies, too much government interference and an anti-business sentiment, are playing a big role in the current weakened economy and labour market,” said Gerhard van Onselen, economic researcher at the Solidarity Research Institute.

This needs to be reversed to restore confidence of businesses and investors, he cautioned.

Van Onselen was responding to questions by Fin24 relating to the Solidarity-ETM South African Labour Market Index (LMI), an index made up of employee confidence, labour affordability and the ETM Business Cycle Index.

The index released on Monday showed that the country is caught up in a labour environment of declining job and wage security that has lasted for almost six years.

The LMI increased marginally from an upwardly revised 41.2 in the first quarter (Q1) of 2016 to 42.1 in the second quarter (Q2) of 2016. The measure of job and wage security set 50 as the breakeven between rising and falling job security.

The revision of previous index levels was due to the Gross Domestic Product revisions by Stats SA compiled in its May 2016 GDP report. It served to raise the Q1 2016 index level from 38.6 to 41.2.

“Although the LMI rose slightly in Q2 2016, it remains within a 6-year downward trend and well below the 50.0 threshold, indicating rapidly rising job insecurity,” the report stated.

“The LMI trend is confirmed by the official Stats SA employment report for Q1 2016 which showed a sharp deterioration in hiring conditions during the period as companies shed lower skilled staff in labour intensive sectors.”

Van Onselen noted that the country's labour difficulties include weak employment trends and layoffs in certain sectors; low labour affordability, that is employers finding it expensive to employ staff, with little room to raise wages; and the perceptions of insecurity in current jobs.

The Solidarity Employee Confidence Index (ECI) increased from 36.5 in Q1 2016 to 40.8 in Q2. Van Onselen explained that only 10% of those surveyed said they felt more secure in their jobs compared to three months ago, 29.5% indicated less security than 3 months before, and 60.3% indicated equal security to 3 months before.

Revisions to the Labour Affordability Index (LAI) show labour affordability having risen slightly since Q4 2015. “However the index remains near record lows, indicating deteriorating labour affordability conditions,” said the report.

Van Onselen said Solidarity expects the LAI to revert back from the extreme low point in 2015.

“Practically, this could manifest with companies attempting to restore profitability by filling crucial posts, but with the index still in the very low territory, labour affordability is still weak, and a reversal is not yet confirmed.”

The ETM Business Cycle Index fell to 43.6 from 45.7 in Q1. The report noted that Q1 2016 GDP reported by Stats SA confirmed the slump in business conditions with GDP falling to 1.2% on an inflation-adjusted basis.

It also pointed out that retail employment trends are becoming a worrying signal of broader macroeconomic slowdown. “Since 2004 the index has reached a peak of 69.1 in Q3 2006 and a low of 31.3 in Q1 2009.”

Declines in retail employment and weaker vehicle sales, Van Onselen said, are indicating that the retail sector may be heading for a difficult time in the coming months.

“Historically, if retail starts to show pain, one has to look out for a broader economic slowdown.”

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