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The recent announcement that SA’s unemployment rate declined in the quarter to June 2022 was met with relief and a note of optimism.
However, even just a quick look at the figures shows that celebrations are premature
For one thing, the unemployment rate of 33.9% means that nearly eight million people are still searching for jobs – without success.
Add the 3 568 000 discouraged work seekers to the 7 994 000 who are actively job hunting and the number rises to more than 11.56 million people who would actually like to work and improve their lot in life.
Thus the expanded unemployment rate in SA is still very close to 45%, compared to the 33.9% according to the narrow definition of unemployment.
Reading the latest Quarterly Labour Force Survey (QLFS) for June 2022 together with two other recent Statistics SA publications – the Mid-year Population Estimate and the Consumer Price Index – drives home the severity of SA’s unemployment problem.
The total population in SA was estimated to be around 60.6 million at the end of June 2022, with Stats SA noting that the population has been growing year after year since 2002.
The population is still increasing fast, despite the devastating impact of Covid-19.
Stats SA says life expectancy at birth improved from 61.7 years in 2021 to 62.8 years in 2022 due to a focus on health problems during the pandemic.
The recent reduction in infant and child mortality rates also helped to turn around a trend of reduced overall life expectancy in SA for a number of years.
The growing population and population demographics give rise to two problems.
Firstly, can 14.9 million employed workers (fewer than 10.2 million of whom are employed in the formal sector) feed a population of 60.6 million?
Secondly, SA has a young population, meaning that the labour force will increase year after year as more people reach working age.
The next wave of new job seekers is already worrying about final school and university exams starting within the next weeks. Then their focus will shift towards looking for work.
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The labour force survey shows that the labour force increased by 749 000 in the 12 months since June 2021.
There were 620 000 new jobs, with the figures suggesting that these “new” employment opportunities were mostly as a result of the continuing recovery following the Covid-19 pandemic.
The bulk of the growth in employment came from the formal sector, adding 400 000 new jobs compared to a year ago.
“Compared to a year ago, a net gain of 400 000 jobs in the formal sector employment was driven by the community and social services (329 000), finance (109 000) and manufacturing (87 000) industries in the second quarter of 2022,” says Stats SA.
“The construction (70 000), transport (34 000) and utilities (18 000) industries recorded employment losses during the same period.”
A graph contained in a presentation of the QLFS report shows that SA has not recovered all the jobs that were lost during the pandemic.
The Bureau for Economic Research at Stellenbosch University noted in its weekly economic review that “even with the better job numbers, the level of total employment remains about 860 000 jobs below the pre-Covid level”.
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Meanwhile, surging inflation is adding to the hardship of households struggling to survive with too few breadwinners.
Consumer price inflation in SA hit a 13-year high of 7.8% in July – with food inflation especially worrying.
In particular, the prices of staple foods such as bread and cereals have increased sharply over the last year, by a massive 13.7%. Meat and fish increased by nearly 10% and vegetables by more than 8%.
The prices of electricity and other household fuels increased by another 8.1% (off an already high base), while the 56% increase in petrol and diesel has seen soaring transport costs for people using their own cars as well as those relying on public transport.
Stats SA found that the cost of public transport has increased by 22% since July 2021.
Expectations are that inflation is bound to stay high, and specifically food inflation.
Hugh Hacking, head of structured investments and annuities at Momentum, says the obvious danger of inflation is that when prices rise faster than incomes, people have to cut back on their spending.
“They can only afford fewer goods and services. This can mean a fall in the standard of living. In addition, higher interest rates lead to higher borrowing costs and in turn less spending.
“In practice, inflation’s negative effects are hardest for those on fixed incomes, such as pensioners reliant on fixed annuities,” says Hacking.
However, high inflation is probably affecting everybody in SA. It might still get worse.
Felix Odey, portfolio manager for global resource equities at investment manager Schroders says that Russia’s invasion of Ukraine prompted a sharp jump in the price of some food commodities and the impact looks set to be long-lasting.
“African countries, including SA, have been intensely affected by the growing crisis, which has sent prices of grains, cooking oils, fuel and fertiliser soaring. Global food prices have jumped, with wheat gaining most.
“We believe these prices are likely to stay around these high levels for the foreseeable future. Demand is set to remain high across the globe, while supply will remain constrained this year and next.
“This tightness in supply and demand may even worsen in 2023 and beyond. That’s because unpredictable weather patterns are adding to supply uncertainty, alongside the possibility of continued disruption to production in Ukraine,” says Odey.
He adds that food production might even decline as farmers are starting to cut back on fertiliser use following significant price increases and supply disruptions in fertiliser markets as a result of the war.
Mamello Matikinca-Ngwenya, FNB chief economist, notes in the bank’s latest weekly report that the moderation in fuel price pressures since July supports slower headline inflation going forward, but that food inflation will stay high.
“There are several risks developing, including drought conditions in Europe and China that could support elevated global food and energy prices,” she says.
Expensive food also impacts other industries as consumers first need to buy (expensive) food, before looking at the display windows of other retailers.
This is already noticeable: Stats SA reports in its recent retail sales survey that retail sales declined by 2.5% in real terms in July 2022 compared to a year ago.
This article first appeared on Moneyweb and was republished with permission. Read the original article here.
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