Our weekly podcast by Kevin Lings

SA economy grows, but not fast enough; US small businesses struggle

In this podcast, STANLIB’s Chief Economist, Kevin Lings, unpacks SA’s GDP growth and the latest US ADP report on US private sector employment. The local economy grew by an encouraging 2.1% year on year, largely because historical data was revised higher, but he warned this is not a sustainable growth rate – that is probably closer to 1-1.5%. In the US, the ADP report for November showed a loss of 32 000 jobs, all in small businesses, which are absorbing higher US tariffs.

The focus areas during the week included

• The S&P 500 index gained a modest 0.3% but has risen by 16.8% in the year to date. It should comfortably exceed the average annual index gain of 12.6% over the preceding 15 years. Over the past two weeks, the US equity market was buoyed by higher expectations that the US Federal Reserve (Fed) would cut interests rates by 25 bps when it next meets on 10 December, despite a general lack of economic data due to the recent government shutdown.

• The STOXX Europe 600 Index ended up a modest 0.4%, while Japan’s stock markets registered a mixed performance, with the Nikkei 225 Index gaining 0.5% and the broader TOPIX Index losing 0.5%. In general, Japanese equities responded negatively to a speech by Bank of Japan (BoJ) Governor Kazuo Ueda that was perceived as hawkish. The speech raised expectations for a December rate hike and pushed Japanese government bond (JGB) yields higher. The 10-year JGB yield climbed to 1.93% from 1.82% the prior week, its highest level since 2007.

• In China, the Shanghai Composite Index added 0.4% as enthusiasm for domestic technology and artificial intelligence trades eclipsed data pointing to an economic slowdown. SA’s All-Share Index added 1.4%, taking the year-to-date performance up to 33.8%. Although most of the improvement was again driven by the resource sector, all the other major sectors recorded a solid performance.

• The US bond market declined, with the yield on the 10-year government bond rising from 4.02% to 4.14%. This occurred despite broad consensus that the Fed will cut rates by 25 bps on 10 December and core PCE easing from 2.9% to 2.8% – in line with market expectations. It is possible that the bond market is getting nervous about President Trump’s appointee as the next chairman of the Fed.

• The rand was the best-performing emerging market currency, gaining a substantial 1.1% against the US dollar, while the emerging market currency index gained only 0.2%. The outperformance of the rand was spurred by the issue of a dual-tranche international bond, which raised $3.5 billion. The bond issue was massively oversubscribed, allowing National Treasury to raise more capital at a lower cost than budgeted. The rand may have also been supported by an expectation that Moody’s would revise up SA’s credit rating outlook from “Stable” to “Positive” on Friday evening. Unfortunately, it did not. Instead, it highlighted SA’s low growth potential due to ageing infrastructure, a weak labour market, and socioeconomic inequalities, which complicate policy efforts and fuel social tensions. More positively, Moody’s flagged that SA’s credit rating could be improved if economic growth accelerated due to an increased level of fixed investment activity.

• In the third quarter of 2025, SA’s GDP grew by 0.5% quarter-on-quarter, (seasonally-adjusted, but non-annualised). This compares with a revised increase of 0.9% in Q2 2025 and only 0.1% in Q1 2025. Over the past year the economy expanded by a very welcome 2.1%, helped by the upward revision to the prior quarter and the fact that almost all economic sectors recorded growth in the quarter. The only negative performance was in the electricity/water sector, which contracted by 2.5% q/q. Unfortunately, while the growth was broad-based, all economic sectors lacked outright vibrancy – especially manufacturing and finance. No economic sector contributed more than 0.1 percentage points to the quarterly growth performance. However, the annual GDP growth estimate for 2025 was revised higher, from around 1.1% to 1.3%.

• On Wednesday, the ADP employment report showed that US private sector employment fell by 32 000 jobs in November, well below market expectations for a gain of 40 000. This is the biggest drop in the ADP data in more than two and a half years. Even using a smoothed three-month rolling data set, the ADP report indicated that private sector employment growth has turned negative. The weakness was most pronounced among small businesses, with companies employing fewer than 50 workers shedding 120 000 jobs in the month. Wage growth also slowed, particularly for job switchers. According to ADP Chief Economist Nela Richardson, “Hiring has been choppy of late as employers weather cautious consumers and an uncertain macroeconomic environment. And while November’s slowdown was broad-based, it was led by a pullback among small businesses.” While the initial ADP estimate has historically been an imperfect guide to monthly BLS payroll data, the decline of 32 000 jobs in November is likely to provide a further reason for the Fed to cut rates by 25 bps on 10 December. The futures markets are now pricing in roughly a 90% chance of a rate cut at next week’s Federal Open Market Committee (FOMC) meeting. (Please note the US labour market report for November, released by the Bureau of Labor Statistics, has been delayed until 16 December).

• President Trump signalled that “I know who I am going to pick” when asked who will succeed Jerome Powell as the next chair of the Fed. Treasury Secretary Scott Bessent has indicated that a formal nomination could come before Christmas, and the president’s chief economic adviser, Kevin Hassett, is the heavily-rumoured frontrunner. Betting markets are assigning a high probability (78% on Polymarket) to Kevin Hassett being nominated as next Fed chair. Hassett recently suggested that the Fed should be cutting rates more aggressively, based on his reading of the current economic data. The appointment of Hasset will immediately raise concerns about central bank independence in the US.

• US weekly jobless claims fell sharply to 191 000, well below market estimates for 221 000. Continuing claims, which measure the total number of people receiving benefits, were little changed at 1.94 million, also lower than forecasts for a slight increase to 1.95 million. It is important to highlight that the jobless claims were measured in a holiday-shortened week because of the Thanksgiving holiday – which probably distorted the jobless claims data.

• The monthly survey from Challenger, Gray & Christmas indicated that US job cuts dropped to 71 000 in November from 153 000 in October. This will help to ease concerns of significant weakness developing in the US labour market.

• On Monday, the ISM reported that its manufacturing Purchasing Managers’ Index (PMI) declined to 48.2 from 48.7 in October. This is the ninth consecutive month of decline in the ISM manufacturing index. The weakness in November was mainly driven by supplier deliveries, new orders, and employment, while input prices increased for the 14th consecutive month and at a faster rate than in October. The spread between new orders and inventories also signals further weakness ahead. In contrast, the ISM services index expanded at a slightly faster pace in November, with the PMI rising 0.2 index points to 52.6, the highest reading in nine months. Encouragingly, the prices paid component of the index declined by 4.6 index point to 65.4%, the lowest reading since April. However, the new orders component dropped sharply. The employment index remained in contraction for the sixth consecutive month, though the pace of contraction eased.

• US PCE inflation rose by 0.3% m/m in September and by 2.8% y/y. This was in line with market expectations, but up from 2.7% y/y in August. Core PCE inflation rose by 0.2% m/m and by 2.8% y/y, also in line with the consensus forecast, but down from 2.9% y/y in August. The release of the September data was delayed due to the federal government shutdown, and the Bureau of Economic Analysis has not yet announced a rescheduled release date for October’s data. At 2.8% y/y, core PCE inflation remains uncomfortably high relative to the 2% target, but it does not appear to be gaining momentum.

• The University of Michigan’s Index of Consumer Sentiment for December 2025 rose by 2.3 points to 53.3. The increase was largely driven by improved expectations for personal finances, although overall views remained “broadly somber, as consumers continue to cite the burden of high prices”. Households indicated that over the next year they expected US inflation to be 4.1%, which is down from 4.5% in the prior month’s survey and the lowest reading since January 2025.

• US industrial production edged up by 0.1% m/m in September, in line with market expectations. Excluding motor vehicle and parts production, industrial production rose by a stronger 0.25%, while over the past year US industrial production is up 1.5%. It has struggled to gain momentum in 2025, despite a low base of activity in 2024 and sharply higher import duties. In fact, since the beginning of 2025, US industrial output has grown at an annual average of only 0.9%, although this is up from an annual average of -0.7% in 2024. Various manufacturing surveys (including the ISM) suggest that the manufacturing sector is unlikely to improve meaningfully in the short term.

• In November 2025, the Eurozone consumer inflation rate edged up to 2.2% y/y, slightly above consensus expectations for inflation to remain unchanged at 2.1%. In contrast, core inflation was stable at 2.4%, and in line with expectations. Within core inflation, non-energy goods inflation was steady, while services inflation edged higher, supporting the European Central Bank’s view that it is either at, or very close to, the bottom of the interest rate cutting cycle. It is interesting to note that in Switzerland consumer inflation was measured at 0% y/y in November 2025. This was below market expectations for inflation to remain unchanged at 0.1% y/y. The decline in inflation for the month (-0.2% m/m) was driven by lower domestic inflation, particularly a drop in rental costs.

• In November, only four central banks cut interest rates, the lowest number of central banks to do so in any month since April 2023. One of the central banks that remains firmly on a rate cutting cycle is Poland. On Wednesday, Poland’s central bank decided to reduce the key interest rate by 25 bps to 4%. This is the bank’s fifth consecutive rate cut (helped by lower inflation and slowing wage and employment growth). The policy statement provided no indication that the bank is about to pause its monetary policy easing.

• BoJ Governor Ueda said that the bank’s basic assessment that the country’s economy has recovered moderately remains unchanged. Prices of not only food products but also goods and services have risen moderately. The governor also highlighted (again) that if the bank’s outlook for economic activity and inflation is achieved, it will continue to increase the policy interest rate. He said that the likelihood of this baseline scenario being realised is gradually increasing. The next BoJ policy meeting is scheduled for 18/19 December 2025, and a rate hike is anticipated.

• Japan’s household spending declined by 3% y/y in October 2025, well below market expectations for growth of 1% y/y. This is the largest decline in household spending since January 2024 and is mostly attributed to a decline in spending on food, entertainment, and vehicles due to persistent cost pressures (higher inflation). The decline highlights the dilemma faced by the BoJ, given an expected further increase in interest rates this month. It was therefore surprising that in November 2025 Japan’s consumer confidence index rose for a fourth consecutive month to its highest level since April 2024, beating market expectations. The improvement was broad-based.