Manufacturing production increased by 5,6% year-on-year in July 2015, driven mostly by a 39,6% year-on-year production rise in the automotive industry and a 17,4% year-on-year rise in the metals and machinery industry. It would be tempting to rejoice in response to these pronounced increases, but the figures don’t tell the whole story.

These increases do not necessarily indicate high levels of production, but are largely a result of what economists term the “base effect”. The base effect describes the impact that abnormally high or low levels (in this case, levels of production) in a base month have on percentage change figures when compared with the most recent month.

The July base effect in manufacturing is clear in the chart below. The year-on-year figure of 39,6% published in Stats SA’s latest Manufacturing: Production and sales release represents the change in the production index between July 2014 and July 2015. A low index was recorded for July 2014, as a result of the four-week-long NUMSA strike.

A recovery in production, after industrial action ended, saw the index return to a more normal level in August 2014. The 39,6% growth figure seems significant, but this is because the July 2014 index – which was used as the base to calculate the percentage change – is unusually low. This is the base effect. It’s a bit like recovering from a hangover: recovery feels good, but actually you are no better off compared with how you felt before the hangover happened.

A base effect for output in the metals and machinery industry was also evident in July 2015 due to industrial action by NUMSA in 2014. Output slumped in July 2014, with a production index of 87,0, the lowest monthly production level on record (series starting in January 1998).

As can be seen in the charts, production in the automotive and the metals and machinery industries still has some way to go before it reaches the production levels experienced before the global recession of 2008/2009. With stagnant metal prices and current concerns over slow GDP growth, only time will tell when or whether this will occur.

Other results from the Manufacturing: Production and sales, July 2015 release:

• Seasonally adjusted manufacturing production increased by 0,3% in July 2015 compared with June 2015.
• Seasonally adjusted manufacturing production decreased by 1,3% in the three months ended July 2015 compared with the previous three months.

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