Third Quarter Production And Employment Statistics - Some Puzzles

Third Quarter Production And Employment Statistics - Some Puzzles

Charles Simkins | Jan 14, 2021
This is the final Brief in the series with all the statistical information about production and employment in the third quarter having now been published. This Brief focuses on puzzles which arise when all the sources are considered together.

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

 

Q1

Q2

Q3

GDP estimated from production

     

Compensation of employees

593,326

555,758

597,639

Gross operating surplus

522,389

431,389

543,203

Value added at basic prices

1,115,715

987,146

1,140,842

Taxes less subsidies on products

162,153

88,495

131,158

GDP at market prices

1,277,868

1,075,641

1,272,000

GDP estimated from expenditure

     

Final consumption expenditure by households

756,238

640,875

749,300

Final consumption expenditure by general government

275,338

272,110

281,844

Gross fixed capital formation

211,793

173,281

193,073

Change in inventories

-35,592

-19,704

-55,092

Exports of goods and services

378,843

290,512

408,548

Less: Imports of goods and services

340,293

276,973

310,245

Residual[3]

31,541

-4,460

4,571

Expenditure on gross domestic product

1,277,868

1,075,641

1,272,000

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

Employment indices (Q1=100)

     
 

Q1

Q2

Q3

GDP

     

Value added

100.0

88.5

102.3

QLFS

     

All employed

100.0

86.4

89.7

Formal employment outside agriculture, households

100.0

89.2

91.4

Agriculture and private households

100.0

82.7

88.4

Informal employment outside agriculture, households

100.0

78.1

84.1

All working

100.0

73.6

86.6

QES

     

Formal employment outside agriculture, households

100.0

93.2

94.0

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

Variable

Q1

Q2

Q3

GDP (R billion)

593.3

555.8

597.6

Index

100.0

93.7

100.7

QES (R billion)

Formal sector outside agriculture, households

724.1

644.7

680.2

Index

100.0

89.0

93.9

QES Average monthly wage (R)

Formal sector outside agriculture, households

22,395

21,448

22,579

Index

100.0

95.8

100.8

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.

[2]Bear in mind that revisions have been made to some of the Q1 and Q2 magnitudes reported in earlier briefs. These revisions are standard practice in the light of new information.

[3]The residual is a balancing item, reflecting the fact that magnitudes on both the production and expenditure sides are estimates and that their totals do not reconcile exactly.

[4]The VAT rate did not drop over the period and some excise taxes rose. The drop in collections may be partly as a result of the COVID tax deferral programme, and cash strapped businesses may have fallen behind in payments.

[5]However, the Quarterly Financial Statistics for the second quarter recorded an increase in inventories for all the sectors it covers in both the second and third quarters.

[6]It has been above 50 only in two quarters in the last ten years.