Third Quarter Production And Employment Statistics - Some Puzzles

Introduction

This is the sixteenth and final brief in a series on the economy, published over a period of six months[1]. All the statistical information about production and employment in the third quarter has now been published: monthly production statistics, third quarter GDP, and third quarter employment and earnings from the Quarterly Labour Force Survey and the Quarterly Employment Survey[2].

This brief focuses on puzzles which arise when all the sources are considered together.

The evolution of GDP in 2020

Table 1 presents key magnitudes from GDP statistics in the first three quarters of 2020.

Table 1

Table 1 indicates that:

1. Both compensation of employees and gross operating surplus more than fully recovered to their Q1 levels in Q3, meaning that value added at basic prices did too.
2. Taxes (VAT and excise taxes) less subsidies on products in Q3 did not fully recover to their Q1 level, dropping by 19.1%[4]. This meant that GDP at market prices dropped slightly between Q1 and Q3.
3. Final consumption expenditure by households, after a sharp drop in Q2, very nearly recovered to the Q1 level in Q3. Government expenditure, which dipped very little in Q2, more than recovered to the Q1 level in Q3.
4. On the other hand, investment did not recover to Q1 levels in Q3. Gross fixed capital formation was 8.8% lower in Q3, and there was disinvestment in inventories in each of the three quarters, with the sharpest drop in Q3[5].
5. There was a positive balance of trade in each of the quarters, with the greatest surplus in Q3. The value of exports in Q3 was 7.8% higher in Q3 than in Q1, while the value of imports was 8.8% lower.

On the whole, Table 1 presents a picture of near complete economic rebound in Q3 after the sharp drop in Q2. Consumption in Q3 is very nearly back to the Q1 level. Collection of taxes on production can be expected to improve after COVID tax deferral ends and enterprise cash flow improves.

What happens next on the investment front will depend on business confidence. The Bureau of Market Research’s business confidence index was 18 in Q1, 5 in Q2, and has rebounded to 40 in Q3, its highest level since Q3 of 2018[6]. The upside risk is improving global confidence, especially if the roll out of COVID 19 vaccines proceeds rapidly. The downside risks are the second wave of the South African epidemic and further deterioration in the fiscal position.

Employment

The employment data from the QLFS and QES are less encouraging. Table 3 sets out employment indices.

Table 3

When interpreting Table 3, bear in mind that the QLFS and the QES employment data include furloughed employees. It is possible to calculate an index of those who did any work in the reference week from QLFS data, and it is shown in Table 3, but no corresponding measure is contained in the QES data.

The QLFS indicates that retention of employees was greatest in the formal sector outside agriculture and households. The QES indicates greater retention in this sector in the QLFS. Even so, employment has not bounced back to the extent of value added. The QLFS indicates that 17% of employees in agriculture and 22% of employees in the informal sector lost their jobs or closed their businesses in Q2 and that the bounce back has not been great. For some, in these two sectors, COVID regulations may have inhibited reabsorption in Q3. If so, further bounce back can be expected in Q4.

Compensation of employees

Data on the compensation of employees are more incoherent than data on employment. Table 4 sets out the available information:

Table 4

The only earnings data we have indicate that average wages in the formal sector outside agriculture and households did not fall far in Q2 and have completely recovered in Q3. The main movement in aggregate earnings in the QES was caused by changes in employment. The QES indicates that earnings were consistently higher than compensation of employees recorded in the GDP and the movement in them has been different.

Conclusion

If and when COVID 19 is wholly or nearly completely eliminated from human populations, econometricians may try to estimate the impact of the epidemic on the South African economy. They will not have an easy task. A full analysis would consider the global as well as the local course of the epidemic. And it would have to cope with the fact that different sources of data on the South African economy say different things. For now, we can only wait to see what happens next.

Charles Simkins
Head of Research
charles@hsf.org.za

[1]The fifteen preceding briefs are Charles Simkins, (1) Decision making in a time of uncertainty, 11 June, (2) The Adjustment Budget and beyond, 30 June, (3) Has the Supplementary Budget betrayed the promise of a R 500 billion stimulus package? 15 July, (4) Austerity and a permanent income shock, 15 July, (5) The implications of the second quarter Gross Domestic Product data, 11 September, (6) (with Charles Collocott) July production statistics: an indication of a V-shaped recovery? 28 September, (7) The April to June Quarterly Labour Force Survey: a cautionary note, 30 September, (8) The National Income Dynamics Study’s Coronavirus Rapid Mobile Survey: the labour market in the first and second quarters of 2020, 14 October, (9) August production estimates and April to June Quarterly Employment Statistics, 20 October, (10) How coherent are the 2020 production and labour market data? I – The basis for assessment, 4 November, (11) How coherent are the 2020 production and labour market data? II - The main issues, 4 November, (12) Financing government debt, 5 November, (13) The political economy of theEconomic Reconstruction Plan, 10 November, (14) September production, rates of profit and loanable funds, 3 December, and (15) The July to September Quarterly Labour Force Survey, 3 December.