From Gareth Stokes, MoneyWeek editor,

Dear Money Morning Reader,

South Africa’s long-term economic recovery hinges on a turnaround in the developed world. This means you will see the first signs of economic improvement in the US economic indicators. You should focus your  attention on the United States’ war against its unemployment juggernaut rather than the disappointing domestic numbers. US payroll data to September 2009 shows an average 482,000 job losses per month over the past year. And the US economy has shed a massive 7.2m jobs since it entered recession in the final months of 2007. As unemployment in the world’s largest economy nears 10% economists are concerned the ‘signs of life’ from developed countries are largely cosmetic.

They warn that improvements in the so-called ‘leading’ indicators are due to ‘false’ activities such as companies correcting inventory levels and increased government spending. Recent developments in the US illustrate how ineffective government intervention is. The wads of cash dished out to struggling banks by the US Federal Reserve weren’t the only attempt to resuscitate the sleeping giant. An innovative “Cash for Clunkers” campaign provided an incentive for US car owners to trade in their old vehicles for new. The measure cost Treasury approximately $2.877bn, but it did little to stop the industry rot. Although the initiative led to 690 115 sales the annualised number remains the lowest on record since December 1981.

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South African vehicle manufacturers and distributors are in similar territory. The  National Association of Automotive Manufacturers of South Africa (NAAMSA) says total vehicle sales (year-on-year to September 2009) are down 20%. And your major obstacle when buying a new car remains securing finance. Credit is scarce and credit scoring criteria strictly applied. Economists point to a long drawn out recovery in the sector. Should you concern yourself with jobless numbers and motor vehicle sales statistics?

If you believe the consumer is central to economic recovery the answer is a definite “Yes!” You won’t see a strong recovery in global GDP growth until consumption expenditure returns to pre-crisis levels! Commentators in the US are already pointing to “bumps” in the road to recovery, with the latest data suggesting the “green shoots” may have sprouted too early. Data from the domestic economy supports this view. The rand is too strong, manufacturing remains at recession levels, credit demand is in decline and  there’s no sign of improvement in business or consumer confidence. The economic realities contradict the relentless upward march in equity prices since the second quarter.

The South African Reserve Bank has shrugged off this pessimism. At a Citigroup Global Issues Seminar held in Istanbul recently, bank deputy governor Daniel Mminele said South Africa’s recovery would be underway by year end. “The composite leading indicator of the Reserve Bank has increased during each of the last three periods,” he said. He prefers the latest Bureau for Economic Research purchasing managers’ index assessment (PMI) of South Africa Inc. The index confounded expectations to surge from 39.3 points in August to 48 in September, after spending seven consecutive months below 40! But Standard Bank Economics is not so sure. They say the PMI improvement confirms the country’s manufacturing sector will remain in the doldrums until demand improves.

You don’t have to sit on the sidelines through South Africa’s slow recovery. In MoneyWeek's feature article David Stevenson takes a look at opportunities in Canada – a country that’s enjoying a rather ‘soft’ recession!

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Turning to the markets...

The JSE all share index fell 0.58% on Friday. The gold mining index closed 0.97% down. Resources pulled back 1.01%. Banks and financials edged up 0.56% and 0.01% respectively. Industrials slipped 0.42% and the platinum mining index lost 1.88%.

London's FTSE100 added 0.14%. The Dow Jones bounced 0.8% and the Nasdaq jumped 0.72%.

Tokyo's Nikkei bounced 1.87%. Hong Kong's Hang Seng closed down 0.09%.

Brent crude is currently trading at $70.75 per barrel.

Spot gold's trading at $1,049.65 and platinum was last quoted at $1,337.00.

And here's how the rand is performing against the major currencies:
R/$7.46
R/₤11.81
R/€10.97

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