Unemployment down thanks to post-election optimism

South Africa’s unemployment rate for the third quarter decreased to 32.1% thanks to post-election optimism. The number of unemployed people decreased by 373 000 to 8 million.

Jee-A van der Linde, senior economist at Oxford Economics Africa, says although the rate is still shockingly high, they forecast unemployment will gradually drift lower over the coming quarters thanks to the improved economic growth outlook.

“Although the directional change in the unemployment rate was in line with our expectations, the magnitude of the decline was bigger than we anticipated. We expect South Africa’s employment rate to continue its decline over the coming quarters on the back of businesses being more optimistic about the domestic economy.”

He says although businesses are less gloomy than before the elections in May, there is a lot of ground to cover. “Increased private-public partnerships are widely considered the catalyst for unlocking strong job growth and new investment to boost South Africa’s growth potential.”

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Job gains in a smaller labour force

Johannes (Matimba) Khosa and Nicky Weimar, economists at the Nedbank Group Economic Unit, say the unemployment rate drop was due to job gains amid a smaller labour force, while the uptick was supported by improved economic activity over the quarter as domestic demand recovered and structural constraints eased.

However, they find it concerning that the number of discouraged jobseekers increased by a substantial 160 000 as the economy failed to absorb the growth in the labour force.

“The outlook for the job market looks more promising. Employment will likely increase moderately as the economy recovers over the next 12 to 18 months. Trading conditions already improved significantly, with load shedding suspended and logistic networks slightly less clogged.

“Easing supply-side constraints, coupled with relatively steady, albeit uninspiring, global demand, should support employment in agriculture, mining and manufacturing.”

Khosa and Weimar expect that the main boost will likely come from services driven by the anticipated recovery in consumer demand as real household incomes return to growth, inflation remains subdued and interest rates decline further.

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Government plans for more infrastructure spending should help

“Further upside could stem from government’s plans to accelerate infrastructure spending. In its October Medium Term Budget Policy Statement, National Treasury announced that government will prioritise infrastructure investment by removing regulatory and administrative hurdles and scaling up partnerships with the private sector.”

In contrast, they say, government caps on staff numbers will restrict public sector employment. “While employment is forecast to increase, the pace of job creation will still be too slow to absorb new entrants into the labour market and reduce unemployment significantly.

“Consequently, the unemployment rate will likely remain high, easing only slightly and still leaving a large pool of discouraged workers.”

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Relatively positive picture of employment

Dr Elna Moolman, head of South Africa macroeconomic research at the Standard Bank Group, says the quarterly Labour Force Survey data paints a relatively positive picture of employment in the third quarter of this year and it shows that jobs were created compared to the previous quarter as well as compared to a year ago.

“However, it is always worthwhile to keep in mind with this data set that the data can be somewhat volatile from quarter to quarter. It is also important to remember that the detail tells us that formal private sector employment outside of the agricultural sector essentially trained sideways.

“In other words, many of these jobs were created in the informal sector and there seems to have been some jobs created by government’s part-time employment programmes. Therefore, the data is positive and it in line with our view that economic data should generally improve from the middle of the year. But we should just keep in mind some of the detail behind this data.”