Confidence and data
Another day another data set.
A lot of the time markets run on two principles, fear and greed. When the data looks good we get greedy and expectations and confidence rise. When the data don't look so great we get scared and confidence plummets.
These rises and falls however are very much linked to short term sentiment and for every data set that comes out, you can be sure another will follow.
Right now Stats SA has released data relating to electricity provision and manufacturing. If we remember back to the dark days of last year when load shedding was in full choke, Eskom said they just couldn't give us anymore power, captain.
Business while losing actual productivity and real economic costs that were associated with the load shedding got fearful. This fearfulness lead to contracted expansion plans and in a way may have actually helped to bring our out of control electricity consumption in control.
Now new data has been released that in the words of BUA news 'South Africans used 5.7 percent less electricity in November 2008 as compared to the same month in 2007'.
This comes from Stats SA's Electricity generated and available for distribution P4141 report. Now if we are using less electricity it stands to reason that more electricity is available to use from the grid, this is where the greed factor can kick in. Just because we have used less does not mean that we can now be profligate, or we might find ourselves load shedding in a few months again.
A second set of data released by Stats SA, the Manufacturing: Production and sales, November 2008 P3041.2, also notes a contraction. This again may well be a fear factor.
The Mail and Guardian called it with the headline 'Rot sets into manufacturing sector'. Manufacturing has apparently fallen to its worst levels in ten years. Adjusted by season and annualised, manufacturing has contracted by 12%.
This is a very scary figure and is likely to see even less confidence and the halo effect of negative sentiment emanating from it. These kind of data lead to other knock on fears, that our economy is cooling rapidly and that panic might just be the right option.
However a steady slower longer term look at things tells us that everything that goes up comes down and vice versa.
The manufacturing sector is contracting, business folks are worried so they place a lesser order next month, the workers are worried because they have had to go onto short time, so they spend less, and the shops are worried because their revenues are down, so next month they place a lesser order and so on. This kind of negative ripple can spread fairly quickly through the economy.
Interest rate cuts are designed to boost confidence more than anything, the actual real effects are only felt months and months after they have been implemented, but folks feel a bit more confident so they buy a bit more, even if it may be on credit, the shops see their revenues rising so they up their orders, the manufacturers hire some extra staff hours and the economy starts ticking over nicely again.
Fear and greed, greed and fear, a circuit that runs the market both up and down and all over again.
Justmoney takes a longer view and always looks to the future with optimism. We say get a savings account, and consolidate your debt, do a budget and know for real how much you got, then the confidence boom and bust cycle will have less to do with you and more to do with everyone else running around in circles while you can sit back relax and wait for the next round of good times.