Considerable uncertainty surrounds the current condition of the South African economy. According to
Statistics SA, mining and manufacturing figures for July indicate a decisive slowdown in production levels,
suggesting that global economic weakness continues to affect South African producers adversely.
However, Investec’s Hard Numbers Index produced by Prof Brian Kantor suggests that the consumer – as
measured by domestic vehicle sales and the demand for bank notes – is generally buoyant, while
liquidations and insolvencies continue to improve suggesting that consumer indebtedness and small
business earnings are improving.

Employment levels are not usually viewed as a barometer of economic conditions, for the reason that job
creation tends to lag behind improvements in the economy, usually by between 24 and 36 months.
Permanent jobs, which represent 47.3% of all jobs in South Africa, have the property that many economic
conditions must be met – sustained high economic growth, high and stable returns on capital, buoyant
business and consumer confidence, certainty around government policies, etc. – before employers will
venture to risk employing someone on an indefinite basis. This is not to say that permanent work is secure
or indefinite. All workers – temporary workers, agency workers, permanent workers, etc. – are equally
protected by labour legislation in South Africa. But section 189 of the Labour Relations Act (1995) permits
an employer to dismiss an employee on the basis of operational requirements, termed “retrenchment”,
the conditions for which are most easily demonstrated in the case of temporary and agency (“labour
broker”) workers. This makes temporary work much more flexible than permanent work in practice, since
the employer typically does not create an expectation of indefinite employment when engaging a
temporary worker. The upshot is that temporary work follows economic activity fairly closely (correlation =
79.3%), since employers are able to use contract workers for fixed, typically short, durations on an asneeded basis.

The advantages of employment flexibility – such as matching labour costs to variable production and sales
volumes, and limiting employment to the duration of a project or specific investment programme – have
given rise to a systematic upward growth path in temporary employment, which now represents 29.9% of
total official employment. This would ordinarily make interpreting temporary employment growth difficult
to interpret in relation to the economy, but several data transformations are possible that give great
meaning to temporary employment data. For example, the capacity utilization of temporary workers is
defined as the number of hours actually worked in relation to the available hours per temp. When an
individual temp’s capacity utilization approaches or occasionally exceeds 100%, it will usually be followed
by the employment of additional temps. When the capacity utilization of all temps across the country
approaches 100%, it will usually be followed, either by the creation of more temporary positions, or by the
use of permanent workers.

As indicated in the figure below, capacity utilization of temporary workers increased during the period
January to December 2010, as the South African economy grew following the 2008/2009 recession. In
January and February 2011, there was a brief lull in temp capacity utilization, followed by resumed
momentum during March and April. Of greater interest is the pattern in the last four months – namely a
decline in temps’ capacity utilization from 98.3% in April to 74.6% in August, or the lowest level since
February.

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