Average take-home pay slipped marginally in May, but pensions held its own

The average nominal take-home pay, tracked in the BankservAfrica Take-home Pay Index (BTPI), slipped marginally during May 2023 to R14 457, remaining 2.7% below the level of a year ago (R14 862).  While the economic narrative remains dismal, evidence of resilience has recently been coming to the fore, with better-than-expected economic data releases. Specifically in the mining and manufacturing sectors, production figures surprised to the upside despite heavy load-shedding in April, suggesting that these industries are becoming progressively more resilient to the effects of load-shedding, as companies reduce their energy dependence on Eskom. Though it is early days, this is an encouraging observation.

Confidence levels in the economy, however, remains at shockingly low levels and will continue to hamper the economic recovery.  The RMB/BER Business Confidence Index (BCI) declined for a fifth consecutive quarter to reach 27 in Q2 2023, down by 9 points from 36 in Q1. This was the lowest level of confidence since 2020 and suggested that only roughly a quarter of respondents were satisfied with prevailing business conditions. Similarly, the Absa/BER Quarterly Manufacturing Survey shows that after a nine-point drop in Q1, manufacturing business confidence remained unchanged at 17 points in Q2, suggesting that more than 80% of respondents are unsatisfied with business conditions. An environment of such low confidence is not conducive for job creation or comfortable wage increases, as indeed confirmed by the BTPI in May.

Not only has the BTPI declined in nominal terms compared to a year ago, but also in real terms, as inflation remains at elevated levels and has continued to erode the purchasing power of average salaries. Take-home pay, measured in the BTPI, slipped in real terms to R13 416 per month in May 2023, 8.8% lower than a year earlier (R14 718) and the lowest level on record. This dire scenario hinges on disappointing average nominal wage increases and high consumer inflation, a double whammy negative for salary earners.

While the consumer price inflation cycle most likely reached an upper turning point at 7.8% y/y in July 2022, the downward trend has been disappointingly slow. However, April’s headline inflation print surprised to the downside at 6.8% y/y and the next few months should see headline inflation moderating at a faster pace, partly due to a high base of calculation created by last year’s spike in fuel prices. Current forecasts suggest that headline inflation could be at 5.4% y/y in June and average around 5.3% in H2 2023. Consumer inflation is currently forecast to average around 6.0% in 2023 compared to a 13-year high of 6.9% in 2022 (2009: 7.1%), just touching the upper level of the SARB’s 3-6% target band.

The job market, on the other hand, also remains uninspiring. After two consecutive months in which moderate increases were observed in the number of salaries paid into South Africans’ bank accounts (February and March 2023), BankservAfrica’s data – adjusted for weekly payments – suggests that the bulk of those gains were reversed in April and May, leaving the job market essentially flat.

With little indication of a different economic environment in 2023, but rather even lower economic growth forecasted for 2023 compared to 2022, the job market (also salary adjustments) is likely to remain lacklustre in the remainder of 2023, a scenario that could only exacerbate the unemployment crisis.

With the economic hardship, endured especially by the lower and middle-income groups of South Africa, it is not surprising to learn that Old Mutual expects a wave of cash-strapped South Africans to withdraw up to R25 000 each from their pension savings when the new two-pot retirement system comes into effect on 1 March 2024. Millions of households are finding themselves with their backs against the wall, battling to make ends meet amid soaring inflation, higher interest rates and an economy on the brink of recession. The new system means South Africans will be able to access one-third of their retirement savings throughout their career, while two-thirds will only become accessible on retirement. The reform is meant to deter South Africans from cashing out their retirement savings when they resign, and also aimed at preventing workers from resigning to access their retirement funds.

Average private pensions have held up well despite higher inflation

The BankservAfrica Private Pensions Index (BPPI) ticked up in nominal terms compared to the previous month to R10 247, 6.7% higher than one year earlier and the highest monthly payment so far in 2023.  In real terms, the average private pension in May 2023 came to R9 574, marginally higher compared to a year earlier, signalling that the purchasing power of pensioners have largely been preserved amid the high inflation environment. The average nominal pension payment represents 70.9% of the average take-home pay in May 2023. The value of total take-home pay and private pension payments (less than R100K per month) processed by BankservAfrica in May 2023 declined by 3.0% in real terms, but still increased by 3.1% in nominal terms, compared to a year earlier, on a non-seasonally adjusted and smoothed basis.

Table 1: The BankservAfrica Take-home Pay and Private Pensions indices