Our weekly podcast by Kevin Lings:

SA’s manufacturing sector in long-term decline

In this podcast, STANLIB’s Chief Economist, Kevin Lings, discusses concerns about rising US inflation and the longer-term contraction in SA’s manufacturing sector. While SA manufacturing rose by 1.1% m/m in May, the sector has shrunk by 13.4% since Covid, for various reasons. Kevin argues this trend is likely to continue, unless certain measures are taken to turn the sector around.
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The focus areas during the week included:
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• In US equity markets, a late-week rebound in semiconductor and AI-related shares helped the Nasdaq Composite and the S&P500 to overcome earlier volatility, which was partly driven by higher oil prices and renewed hostilities between the US and Iran. The Nasdaq rose by 1.7%, while the S&P 500 gained 1.2%. In contrast, the Dow Jones declined by 0.5%, and the Russell 2000 Index fell 0.6%. Year-to-date the S&P 500 is up 10.7%. Geopolitical tensions remain in focus after a re-escalation in military activity between the US and Iran.
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• The STOXX Europe 600 Index ended down 1.8%, as the ceasefire between the US and Iran collapsed and the two countries exchanged military strikes - although they maintain negotiations. Japan’s stock markets declined, with the Nikkei 225 Index falling 1.7% and the broader TOPIX Index down 0.7%. SA’s All-Share Index declined by 1%, with the Resource10 down 4.4% for the week and down 15.5% in the year to date. In contrast, the Financial 15 is up 4.5% in the year to date.
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• US government bonds generated negative returns, as rising oil prices and hawkish minutes from the US Federal Reserve’s (Fed) June meeting helped to push yields slightly higher for most maturities. The yield on the 10-year US government bond increased to about 4.56%, up from 4.49% at the end of the previous week.‍
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• The rand depreciated by 0.5% against the US dollar, reflecting a temporary risk-off reaction to the flare-up in the Middle East. The rand is one of the better-performing emerging market currencies in the year to date, appreciating by 1.5%. This compares with its emerging market peers in aggregate, which are down by 0.6% in the same period.‍
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• President Trump declared the ceasefire between the US and Iran to be over, raising the prospect of an end to peace talks and the potential for renewed fighting between the two countries. The US launched a fresh wave of strikes and revoked Iranian oil waivers. Iran retaliated by striking military bases in Kuwait and Bahrain. In response, the WTI oil price jumped 4.8% to about $74/barrel, up from $68.50 at the start of the week, but still well below the $120 level seen at the start of the conflict in March. Subsequently, the oil price has subsided to around $72/bl. However, since the US attacked 140 Iranian military targets on Saturday (bringing the total number of targets hit over the past three days to around 300) and Iran announced that the Strait of Hormuz was closed “until further notice”, the outlook for the oil price is extremely uncertain.‍
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• Minutes from the Fed’s June meeting showed that a few policymakers saw a case for raising interest rates, although they ultimately supported leaving borrowing costs unchanged. The labour market was stable and many participants noted that it was “not currently a source of inflationary pressure”. Officials were divided over the path for interest rates for the remainder of the year, given a high level of uncertainty about possible economic scenarios. Most supported removing language from the central bank’s policy statement that had implied an easing bias.‍
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• The US ISM services index eased to 54 in June from 54.5 in May. This was in line with market expectations, but it remained in expansionary territory for the 24th consecutive month. The employment component returned to growth after three straight months of contraction, while the prices index declined but indicated rising prices for the 109th consecutive month.‍
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• US weekly jobless claims for the week ended 4 July were 215 000, a modest decrease from the previous week’s revised reading of 217000. So far in 2026, initial claims have averaged roughly 213 000, well below the 30-year median of more than 300 000. In contrast, continuing claims rose by 8 000 from the prior week to 1.814 million. Overall the claims data suggest that the US labour market remains solid.‍
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• US existing home sales fell 2.4% m/m in June to a seasonally-adjusted annual rate of 4.09 million, as elevated prices and borrowing costs continued to weigh on affordability. Since 2023, monthly existing home sales have persisted at an annualised rate of about 4.1 million, well below the 2015–2019 average of about 5.4 million. The lack of affordability is a key factor restricting the buoyancy of US housing activity.‍
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• In May, SA’s manufacturing production increased by 1.1% m/m, a welcome gain after output declined by a revised 2.6% m/m in April. Unfortunately, the sector has not been able to generate more than three consecutive monthly gains since 2020 and is clearly struggling to gain any momentum. Over the past year production has declined by a substantial 4.3% and it has declined by 13.4% since May 2019. In May, only four of SA’s ten major manufacturing sectors recorded an increase in output, including motor vehicles (3% m/m), iron and steel (1.6% m/m), petroleum/chemical products (4% m/m) and electrical machinery (4.6% m/m). In contrast, food and beverage production declined by 0.6% m/m, clothing and textile output fell by 3.3% m/m and cement output contracted by 3.8% m/m. Most manufacturing sectors continue to face numerous headwinds besides weak economic infrastructure. These include sluggish domestic demand because of subdued construction spending, increased import penetration, the high cost of doing business (e.g., the cost of electricity), significant business regulation and disruptions/uncertainty in global trade – all of which undermine productivity and competitiveness.‍
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• China’s June consumer price index rose by 1% y/y, slightly below consensus and slowing from May’s increase of 1.2%, while core inflation also edged down to 1%. Food prices and some travel-related services remained soft, consistent with still-subdued consumer demand. In contrast, producer prices increased by 4.1% y/y, matching market expectations and recording the fastest pace of increase since July 2022. PPI inflation was pushed higher by non-ferrous metal prices, as well as the prices of petroleum and coal.‍
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• The People’s Bank of China (PBoC) said it would maintain an appropriately accommodative monetary policy, keep liquidity reasonably ample, and strengthen support for domestic demand, technology innovation, and small and medium-sized enterprises, after its second-quarter Monetary Policy Committee meeting chaired by Governor Pan Gongsheng. The committee also called for stronger counter-cyclical and cross-cyclical adjustments and lower overall financing costs. It acknowledged that the economy remained generally stable but continued to face insufficient domestic demand, structural imbalances, and a more complex external environment. The statement maintained a supportive policy signal without announcing a broad-based stimulus program.‍
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• In Japan the corporate goods price index, a measure of wholesale inflation (effectively PPI inflation), rose by 7.1% y/y in June, above consensus expectations for an increase to 6.8% and up from a revised increase of 6.6% in April. Higher fuel and nonferrous metals prices drove most of the acceleration in PPI.‍
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• In Japan, nominal average wages (labour cash earnings) rose by 3.2% y/y in May, below consensus expectations for growth of 3.4% and down from revised growth of 3.6% in April. Real wages increased by 1.4% y/y, down from a revised 2% y/y in May, as reaccelerating consumer inflation slowed the pace of purchasing power gains. Against this backdrop, household spending fell by 0.4% y/y in May, a much smaller decline than the consensus forecast for a 2.3% contraction, following a decline of 0.5% in April. Spending on culture and recreation, including domestic and overseas travel, fell, although the overall household spending data suggested consumer demand was more resilient than expected.‍
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• The Reserve Bank of New Zealand raised its official cash rate by 25 bps to 2.5%, marking its first increase in three years. Policymakers pointed to persistent domestic inflation pressures and expectations for stronger economic growth, despite the earlier decline in global oil prices. The central bank also signalled that further increases are likely, although their timing will depend on incoming inflation data, business pricing behaviour, and the strength of the economic recovery. The increase was in line with market expectations.‍
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• On Thursday, 322 of the 403 UK Labour members of Parliament gave their backing to Andy Burnham to succeed Keir Starmer as leader of the governing party. This could pave the way for Burnham to be formally announced as party leader next Friday (17 July) and enter Downing Street on Monday, 20 July.

• On Thursday the Fed announced the leadership and objectives of its task forces to advance the conduct of monetary policy. “Each task force will carefully consider whether policymakers' means and methods, analytical tools and policy approaches can be improved upon”. The leaders of the five task forces are:

Communications: Review how the Fed conveys policy deliberations and decisions amid uncertainty.

• Peter R. Fisher, Professor of Practice, Foster School of Business, University of Washington
• Arminio Fraga, founder and Chairman, Gávea Investimentos; former President, Central Bank of Brazil
• Mervyn King, former Governor, Bank of England

Balance sheet policy: Examine the costs, benefits, and institutional implications of the Fed’s current balance sheet regime.

• Karen Dynan, Professor of Economics, Harvard University
• Raghuram Rajan, Professor of Finance, University of Chicago Booth School of Business; former Governor, Reserve Bank of India
• Jeremy Stein, Professor of Economics, Harvard University; former Governor, Federal Reserve Board

Data: Improve the quality and timeliness of real economic signals that inform the Fed's policy judgments.

• Raj Chetty, Professor of Economics, Harvard University
• Doug McMillon, former President and CEO, Walmart Inc.
• Kevin Murphy, Professor of Economics, University of Chicago

‍Productivity and jobs: Assess the economic impact of new general-purpose technologies, including AI, to inform the Fed's policy judgments.

• Marc Andreessen, co-founder and General Partner, Andreessen Horowitz
• Charles I. Jones, Professor of Economics, Stanford University, currently on leave at Anthropic
• Asha Sharma, Executive Vice President and XBOX CEO, Microsoft Corp.

Inflation frameworks: Revisit how the Fed understands and responds to the drivers of inflation.

• Greg Mankiw, Professor of Economics, Harvard University; former Chairman, Council of Economic Advisers
• Thomas Sargent, Professor of Economics, New York University; Nobel laureate
• William White, Senior Fellow, C.D. Howe Institute; former Economic Adviser, Bank for International Settlements

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