Our weekly podcast by Kevin Lings

No resolution to US government shutdown; SA’s retail sales slow

In this podcast, STANLIB’s Chief Economist, Kevin Lings, looks at the economic disruption as the US government shutdown enters its third week, with no resolution in sight. He also considers the slowdown in SA’s retail sales in August, which appears to be largely due to the tapering off of two-pot withdrawals.

The focus areas during the week included

• The S&P 500 index gained 1.7%, partly reversing the previous week’s decline of 2.4%, which included the S&P 500’s worst trading day since April 2025. Year-to-date the S&P 500 is up 13.3% but it is 1.3% below the record high on 8 October. The week started on a positive note after representatives from the US and China appeared to walk back some of the prior week’s escalation of trade tensions. Some dovish comments from Federal Reserve (Fed) officials on Tuesday, several deal announcements in the artificial intelligence (AI) space and better-than-expected third quarter results from some of the large US banks also appeared to support the market. However, on Thursday the US equity market weakened after two regional banks (Zions Bancorp and Western Alliance) disclosed problems with loans involving allegations of fraud.

• The STOXX Europe 600 Index ended up 0.37%, helped by dovish comments from US Fed Chair Jerome Powell and some signs of de-escalation in US-China trade tensions. SA’s All-Share Index gained 0.65% in the week and is up 31.7% year-to-date, despite a sizeable decline of 2% on Friday, hurt by a 6.2% pullback in the value of the Resource 10 index.

• The gold price ended the week at $4 224 an ounce, which is a gain of 61.9% year-to-date and slightly below the record high of $4 261 per ounce achieved on Thursday. A combination of less trust in the US dollar, lower US interest rates, signs of political dysfunction in Washington, and renewed trade tensions between the US and China helped to provide a supportive backdrop for the gold price. In contrast, the oil price (Brent) fell to around $60/bl (five-month low) as the International Energy Agency raised its supply forecast and cut its demand outlook.

• The US Federal Government shutdown has entered its third week and looks very likely to become (at least) the second-longest government shutdown. The longest government shutdown lasted 35 days and occurred at the end of 2018 and into 2019, although this occurred over the holiday season, limiting disruptions. The Senate has already voted 10 times to try and resolve the shutdown, but with no success. Recently, there have at least been signs of moderates from both parties entering into discussion to try to find a compromise. Since the US government shutdown began on 1 October, numerous data releases have been postponed, including retail sales, initial jobless claims, CPI, PPI, industrial production, construction spending, factory orders, employment, international trade, wholesale trade, housing starts, and the leading indicator. The lack of official statistics has resulted in more attention being focused on survey data and private-sector indicators of activity. This has included the Philadelphia Fed business outlook, the ISM manufacturing and service index, the ADP employment report and the New York Fed Services business outlook survey. However, some of these surveys capture smaller parts of the US economy, can be volatile and are not necessarily indicative of underlying trends.

• Fed Chair Jerome Powell hinted that the Fed remains on track to cut interest rates at its next Federal Open Market Committee (FOMC) meeting on 29 October. He conceded that, with inflation uncomfortably above the Fed’s 2% target, the path for policy was not straightforward. However, he seemed to put more emphasis on the “significant downside risk” to the labour market after a clear slowdown this year, indicating that the central bank continues to favour easing policy as part of the risk-management approach laid out at its September meeting. Powell also hinted that the Fed was nearing the point at which it would stop allowing government bonds bought during Quantitative Easing to roll off its balance sheet. Several other Fed officials, including Christopher Waller and Stephen Miran, also made comments supporting additional rate cuts this year. The combination of interest rate cuts and stable Fed Treasury holdings was well received by bond investors, with US government bonds continuing to rally. This helped to push the two-year Treasury yield down to a three-year low of 3.41% on Thursday, while the 10-year yield dipped slightly below 4% for the first time in 2025, before ending the week at 4.02%.

• On Wednesday, the Fed released its Beige Book, a report published eight times a year, in which each of the Fed’s 12 regional banks gathers information and data about economic conditions in its district. The report noted that economic activity was little changed since the previous report, with a generally mixed picture across districts, as employment levels held steady and wages rose, but consumer spending “inched down,” “prices rose further,” and “more employers reported lowering head counts through layoffs and attrition.”
• South African retail sales declined by 1.2% m/m in August 2025, after growing by a revised 2.3% m/m in July. This was below market expectations. Over the past year sales have risen by 2.3% y/y (real), significantly down from 5.7% in July. The consensus expectation was for a yearly increase of 3.7%. While the growth in retail spending in August was below market expectations (especially the month-on-month decline of 2.3%), the performance over the preceding ten months (from October 2024 to July 2025) was relatively robust. It averaged a monthly increase of 0.5% (real) and an average annual increase of a remarkable 4.9% (real). The outperformance of SA’s retail sector over the ten-month period outlined above appears to reflect a combination of factors. These include the benefit of subdued inflation (hence stronger growth in real disposable income), relatively robust growth in credit card debt, which recorded an average monthly increase of 0.7% from October 2024 to June 2025 but is now softening, and significant “two-pot” withdrawals, which have exceeded R60 billion (before tax) since inception. However, while inflation remains subdued at 3.3%, there has recently been some moderation in the use of credit card debt. Also, the volume of two-pot withdrawals is likely to be fading, given the surge in withdrawals in earlier months and the fact that ongoing withdrawals are limited to the savings portion of monthly contributions. These recent trends could help to explain the decline in retail activity in August, although more data is required to provide a more definitive explanation.

• After a strong start to the third quarter, SA’s seasonally-adjusted mining production fell by -1.2% m/m in August, reversing the July increase of 1.2% m/m. On a yearly basis, mining production fell for the first time since April 2025, declining by 0.2% y/y. This was significantly lower than July’s reading of 5.1% y/y and lower than market expectations for mining production to rise by 1.7% y/y (Bloomberg). The largest negative contributors in August were PGMs (-3% y/y), gold (-3.6% y/y), and manganese ore (-3.4% y/y). Overall, SA’s mining output remains disappointing, with production still 11% below the level that prevailed in January 2020, prior to the Covid-19 outbreak.

• The IMF’s World Economic Outlook for October 2025 highlights that global growth is projected to slow from 3.3% in 2024 to 3.2% in 2025 and to 3.1% in 2026. While the update still reflects a moderation in the rate of growth, it is a modest improvement on the outlook presented in July 2025 and meaningfully higher than the growth forecast released in April 2025 of 2.8% for 2025. Advanced economies are forecast to grow at about 1.5% in 2025–26, with the US slowing to 2%, while growth in emerging and developing economies is projected to moderate to just above 4%. In China, the country hardest hit by US tariffs, growth is projected to decline only modestly, owing to a sharp depreciation of China’s real effective exchange rate, a front-loaded surge in China’s exports to Asian and European partners, and some fiscal expansion. In the Eurozone, fiscal expansion in Germany has played a role in boosting growth in 2025, while emerging markets have benefited from easier financial conditions, on the back of a weaker dollar. Interestingly, the IMF revised up its growth for SA by a very modest 0.1% to 1.1% in 2025 but revised down growth for 2026 by 0.1% to a mere 1.2%. Clearly, at this stage, the IMF is unconvinced by the effectiveness of SA’s policy reform agenda.

• China’s consumer inflation rate was recorded at -0.3% y/y in September, up from -0.4% y/y growth in August but below market expectations for inflation to improve to -0.2% y/y (Bloomberg). Unfortunately, the decline in prices was broad-based, with deflationary risks mainly in consumer goods. For example, food, alcohol and tobacco prices, which were the biggest drag on prices in September, decreased by -2.6% y/y, despite government’s efforts to curb price competition. PPI inflation in China fell by 2.3% y/y in September, which is the 36th straight month of declines, though the pace of decline slowed from August’s 2.9% drop. On the policy front, analysts are focused on China’s fourth plenum, a high-level political meeting of Communist Party officials scheduled for 20-23 October. At the meeting, officials are expected to deliberate and approve a proposal from top leaders on China’s next five-year plan, laying out the country’s economic and social development goals. Analysts will be watching for any comments on domestic consumption, which officials have previously signalled would be a priority as they try to rebalance China’s economy in the face of higher US tariffs.

• In September 2025, China’s trade balance recorded a surplus of $90.45 billion, below market expectations for a surplus of $98.05 billion (Bloomberg) and down from a strong surplus of $102.33 billion in August. The deceleration was due to imports rising at a much faster rate during the month than exports. On a yearly basis, export growth accelerated significantly, as weakness in shipments to the US were offset by an increase in shipments to the rest of the world. Imports were also robust in September, despite the underlying lacklustre domestic demand conditions, and largely reflected a pick-up in imports of selected commodities.

• Japan’s political backdrop remained uncertain after the exit of the Komeito Party from its coalition with the Liberal Democratic Party (LDP). In the latest developments, investors awaited the outcome of talks between the LDP and Nippon Ishin no Kai (also known as the Japan Innovation Party, or JIP). If the LDP and the JIP are able to agree on policies and form a new ruling coalition, it is likely to pave the way for Sanae Takaichi, who was recently elected the LDP’s president, to become Japan’s next prime minister. As things stand, a vote to choose Shigeru Ishiba’s successor is likely to be held on 21 October.

• Industrial production in the Eurozone declined by a seasonally-adjusted 1.2% m/m in August after rising by 0.5% m/m in the previous month. The output of capital goods fell the most, with declines in durable goods, intermediate goods, and energy. German production fell 5.2% amid a sharp drop in vehicle production, weaker orders, and plant closures for summer holidays.

• In France, the government of newly-reappointed Prime Minister Sebastien Lecornu survived no-confidence motions tabled by opposition parties after he suspended a pension reform law – a decision demanded by the left – to avoid a potential snap election.