Economic data released during the first quarter of the year show alarming trends in the metals and engineering sector, the Steel and Engineering Industries Federation of Southern Africa (Seifsa) said on Tuesday.

The data also confirmed the organisation’s forecasts from earlier this year that the metals and engineering sector would not expand, owing to weak demand, power shortages and further industrial action, besides other challenges.

Seifsa stated that four sets of data that were important pointers as to the health of the metals and engineering sector, had recently been published.

“Statistics South Africa’s (Stats SA’s) quarterly employment statistics for the fourth quarter of 2014 provide a good idea of the damage done by the industrial unrest and electricity shortages during the second half of 2014,” Seifsa chief economist Henk Langenhoven said.

Employment in the sector dropped from an average of 394 647 for 2014 to 386 910 by the end of the fourth quarter of 2014, while employment numbers had declined by 1.4% from the third quarter of 2014.

Further, second-half 2014 employment numbers were 2.5% lower than in the first half of 2014, as well as 3.4% lower year-on-year. The full year saw employment contracting by 2.2%, compared with 2013 or by nearly 9 000 people; but when the fourth quarter of 2014 is compared to the last quarter of 2013, the decline was 3.9% or nearly 16 000 people.

“Production capacity use by South Africa’s large enterprises during the first quarter of this year gives an idea of whether companies have recovered after last year’s disruptions,” Langenhoven added.

Capacity use started to decline again by 0.8% quarter-on-quarter in the three months to end-March, after a slight 0.25% recovery in the fourth quarter of last year.

For the whole of 2014, capacity use was 78.7%, 1.3% lower than in 2013 and 8% below the benchmark of 85%. “Although these differentials look small, the sector use has been below this benchmark since June 2007,” Langenhoven pointed out.

He stated that this was critically important for the country, as low capacity use in manufacturing was regarded as one of the main reasons for the potential growth of the overall economy to have declined from about 3.5% to 2.5%.

Meanwhile, Stats SA’s actual production and sales data for the metals and engineering sector showed a 1% month-on-month improvement and a 1.6% year-on-year improvement in output in March. This meant that the first quarter ended up being 0.6% better than the first quarter of 2014.

“The latter two numbers are good news, given the fact that production during the comparable period during 2014 was brisk; however, these production numbers contradict the capacity use data. Anecdotal and financial results evidence from the sector indicates that this recovery will not last during the second quarter,” Langenhoven noted.

He added that yearly data still showed a deepening contraction of 3.3%.

“The fourth dataset that becomes available every month is the forward-looking purchasing managers index (PMI) from Kagiso/BER. The latest PMI shows an accelerating contraction and, given the fact that the business activity subindex leads actual production by 12 to 18 months, it indicates tough times ahead,” he highlighted.

The data indicated that the 12 months to end-April was 7.4% below the same period last year, while the first four months of this year were 0.7% lower than the same period last year, but April was 9% lower than March – showing an accelerated decline.

Further, the index reading for April was nearly 14% lower than for April 2014.

“All four of these datasets contain alarming trends, and the potential impact on employment and company survival, now and into the future, is very disturbing. Based on these numbers, we are of the view that the metals and engineering sector will most likely impact negatively on general economic growth,” Langenhoven stated.