This is what the unemployment rate tells us about SA’s economy

South Africa’s unemployment rate tells us yet again that the country’s economy is in deep trouble as it ticked higher in the last quarter of 2023 to 32.1% after half of South African industries recorded job losses.

The number of employed people fell by 22 000 compared to the third quarter to reach 16.7 million.  South Africa’s unemployment rate is back above 32%, which is far too high and it has not declined sufficiently from the pandemic peak of 35.3% in the fourth quarter of 2021.

The latest data from Statistics SA shows that the official unemployment rate increased by 0.2 percentage points from 31.9% in the third quarter to 32.1% in the fourth quarter.

Jee-A van der Linde, senior economist at Oxford Economics Africa, says this outcome was expected, as economic activity remained weak during the quarter.

The formal sector shed 128 000 jobs in the fourth quarter, followed by agriculture that shed 35 000, while the informal sector added 124 000 jobs and private households 18 000. Van der Linde says the modest increase in private household employment suggests that households are taking strain as the high interest rate environment, together with elevated price inflation, stretches disposable incomes.

Only mining, utilities, transport and finance managed to add jobs at the end of last year.

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Unemployment rate moving in wrong direction

“South Africa’s unemployment rate is moving in the wrong direction ahead of the upcoming elections, while mining companies’ retrenchment announcements in the first quarter of 2024 forecasts even more despair,” Van der Linde says.

“This will irk the ruling ANC while it is on the campaign trail trying to appease voters by telling them of its efforts to boost job growth. The fact that domestic fuel prices are on the rise and with loadshedding continuing unabated does not help.”

He points out that gross domestic product (GDP) was little changed in the third quarter from pre-pandemic levels in the first quarter of 2020, indicating that the South African economy has not gone anywhere in the past three years, while this is not expected to change in the near term.

“A lack of infrastructure investment over the years has limited economic growth potential, which means the economy is unable to produce enough jobs to satisfy demand. We forecast that South Africa’s unemployment rate will hover at current high levels over the medium term.”

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Higher rate driven by lower employment and larger labour force

Johannes Khosa and Nicky Weimar, economists at the Nedbank Group Economic Unit, say a decline in job creation drove the unemployment rate higher in the final quarter of 2023 after two consecutive quarters of decline.

“The increase was driven by lower employment and a larger labour force. Concerningly, but not surprisingly, the job losses were driven by the formal sector, which shed 124 000 jobs, offsetting the 124 000 jobs created in the informal sector during the quarter.”

However, they find it encouraging that the number of discouraged workers declined by a further 107 000, as less severe power disruptions and lower transport costs likely enabled more individuals to actively seek employment.

“Total employment continues to trend above pre-pandemic levels but the unemployment rate remains above the pre-pandemic rate as employment is not growing fast enough to absorb both new entrants into the labour market, the unemployed and the many discouraged workers.”

Khosa and Weimar say it is interesting that the mining sector added 37 000 jobs despite weak global demand, soft commodity prices and persistent structural constraints.

A total of 789 00 (4.9%) jobs were created in the fourth quarter compared to the same period in 2022, driven mainly by higher employment in the finance, community and social services, domestic trade, and construction sectors.

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Unemployment due to unfavourable economic environment

Weimar and Khosa say the unfavourable economic environment clouds employment prospects.

“The country’s crippling structural constraints, notably power outages and transport bottlenecks, will continue to undermine sales and elevate operating costs, squeezing private sector profits.”

They predict that fading profits will force firms to cut costs, which could involve retrenchments.

“The platinum mining industry appears to have reached this point, with several companies announcing large-scale retrenchments over the next year.”

Given the country’s structural issues, still subdued global demand and low commodity prices, employment in agriculture, mining and manufacturing will likely decline further in 2024, they say.

“Employment growth in most other sectors, including services, will likely stagnate, but not necessarily reverse course. Although domestic demand is fading, with consumers under considerable financial strain, the cycle should turn later this year as inflation recedes further and interest rates start to decline.

“We expect employment growth to soften this year, before picking up more convincingly next year. The unemployment rate will, therefore, remain high,” they say.