Left on the Shelf
Is this just another example of an independent bookseller finding it impossible to survive amid the deep-discounting of the online bookstores or increasing retail dominance of the supermarkets who focus on a selection of best-sellers? Actually the answer is no.
read more...»The falling pound - a bitter sweet development
Ordinarily a depreciation in the exchange rate ought to provide a welcome boost to the competitiveness of UK industries exposed to international trade - providing a useful cushion of extra demand at a time of economic weakness. But Roger Bootle’s analysis in his latest Deloitte Economic Review provides a timely and really useful piece of work for A2 students wanting to deepen their understanding of the impact of a lower exchange rate on output, trade, inflationary pressures, profits and jobs.
Bootle argues the the lower pound will help to re-balance the economy - but depreciation has come at an earlier stage of the economic slowdown than that seen in 1992, which came after a major recession. Accordingly, the inflationary dangers of a weaker exchange rate might appear to be greater this time - one of the reasons why the Monetary Policy Committee appears reluctant to cut interest rates.
Download the excellent Deloitte Review here.
Divisions with the MPC - Blanchflower v Besley
Within the nine members of the Monetary Policy Committee, a clear divide has opened up between two of the members - at present they appear to be both on their own with little support from the remainder of the interest-rate setting panel. Who will gather enough support to move interest rates in their preferred direction?
read more...»Darling lays on the pessimism extra thick!
It is manna from heaven for the Chancellor to give Economics teachers such a juicy headline to work with right at the start of teaching a macroeconomics course because it allows us to ask students just how we measure the performance of an economy and test the extent to which this is perhaps the most profound downturn in the post-war period?
GDP growth is stagnant, inflation is more than double the government’s own target of 2% 9with inflationary expectations also heading north) and unemployment as measured by the claimant count and the labour force survey is starting to pick up fast amid a wave of redundancies.
But even a cursory glance at macroeconomic data stretching back to the 1950s and 1960s tells us straight away that the economy is not in the same perilous position than it was in the stagflationary days of the 1970s and early 1980s.
read more...»Income inequality and growth
William Bernstein writes in a guest spot for the Freakonomics blog and considers how extreme income and wealth inequality can hinder growth and development in the long run. Quite apart from the increased burden of spending on defensive expenditure such as home security, prison guards and home and contents insurance - when the gap between the haves and the have-nots reaches staggering levels there is a real fear that respect for property rights is fundamentally undermined.
“The paradox of economic growth is that the same mechanisms that create great wealth –secure property rights and rule of law guaranteed by an independent judiciary — also give rise to great inequalities in its distribution. Private property provides a powerful incentive to produce wealth for oneself while simultaneously denying that same wealth to others. Wealth does trickle down to the rest of the population, but often not fast enough to avoid political strife and worse.”
The remainder of his post is here
Cutting capacity to weather the slump
Two excellent examples in recent days of businesses moving quickly to combat a slump in demand and sales. Both Land Rover and Toyota have decided to scale back on production at their manufacturing plants in the UK. Toyota has a huge plant at Burnaston in Derbyshire second only to Nissan in Sunderland for the annual output of vehicles. The Times reports that Toyota plans to reduce the number of daily shifts on the plant’s Auris production line from two to one this year. Over at Land Rover, some of the assembly workers will have longer weekends after a decision to make Land Rover and Discovery vehicles on four days a week, from Monday to Thursday.
These decisions are pro-active in the sense that businesses cannot afford to build up too high a stock of unsold cars - and with the credit crunch continuing to bite, demand for cars from consumers and from the fleet sector is weakening rapidly. The lower pound ought to make UK manufactured cars more competitive in western European markets - but with the Euro Area teetering on the brink of recession, the negative income effect on demand for new vehicles is offsetting the competitive boost from a lower currency.
Digital Course Companions now available for the new AS specifications
tutor2u’s new digital Course Companions are now available for the new AQA, Edexcel and OCR AS Economics specifications…
read more...»Property woes deepen
This isn’t a gentle correction of house prices towards a sustainable long run position - the fall in UK property values is now steeper than at any time since the Nationwide Building Society first published their house price survey. Prices were 10.5% lower in August than they were a year ago. Prices fell by 1.9% compared with July and the average home now costs £164,654, which is more than £19,000 cheaper than the average price one year ago. Things are pretty bad in Spain too as this BBC news video from Hugh Pym illustrates. This week Taylor Wimpey announced a loss of £1.54bn in the six months to 30 June, saying it faced “very challenging” conditions.
Ordinarily the slump in prices ought to improve affordability and bring more first time buyers into the market - but with expectations for prices so pessimistic and mortgages remaining very difficult to get hold of, that glint of silver lining is unlikely to come to the rescue to the property sector for the time being.
PowerPoint version of the chart
Housing_Market_0808.ppt
The most disgusting thing since sliced bread
I almost spat out my breakfast this morning when I read this piece of news: Rat meat in demand as inflation bites. Apparently with the price of beef at £2.50 per kilo, the poor in Cambodia can no longer afford it and have to resort to rodent meat, despite that being four times what it cost a year ago. We’ve all learnt about bread and potatoes in our lessons about Giffen goods but this is a rather peculiar example which might not quite make it to the textbooks just yet.
More here from the Guardian: Cambodians eat rats to beat global food crisis and from the BBC: India’s poor urged to ‘eat rats’
Behavioural change behind the wheel
I am about to hit the motorway this morning to return home for a new school year - so the front page of the Independent made for interesting reading. Trafficmaster has released figures which seem to indicate that congestion on Britain’s major roads is easing for the first time in over a decade. It offers firm evidence that motorists are responding to the effects of higher fuel prices when making their travel decisions.
read more...»Shaking foundations
The Guardian has a nifty interactive graphic on the troubles facing the UK building industry during the property slump. Housing is one of the classic examples of an industry where cyclical changes in demand feed through very quickly into the number of jobs on offer in construction - a sizeable number of workers do not have permanent contracts, and this applies right the way through the industry from builders to the building supply sectors. The BBC considers whether London 2012 will provide a sufficiently big boost to demand and jobs to partly offset the current downturn.
China’s currency manipulation to soften the slowdown
Perhaps fearful of a steep slowdown in exports to a weakening global economy, the Chinese monetary authorities appear to be engaging in another bout of active manipulation of the Yuan in the foreign exchanges.
read more...»Ageing but not ailing
Sarah Harper, Professor of Gerontology at Oxford and director of the Oxford Institute of Ageing offers this optimistic view of the economic and social spill-overs from our ageing population. Apparently - currently, every hour we live adds five minutes to our life expectancy.
Don’t panic, we have nothing to fear from an ageing society
The article seems to be in response to figures released last week that the number of people aged over 60 in the UK now outnumbers children for the first time.
How best to avoid the ‘D-words’
Much of the newsflow in recent months has been about the possible return of stagflation to western economies - with prices driven higher by a combination of rising energy and food prices allied to the risk of a wage-price spiral. But when asset price bubbles burst - as they are doing spectacularly in the US and UK property markets and elsewhere, the reduction in the value of wealth can expose big holes in personal balance sheets especially when millions of households have gorged themselves on borrowing.
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Immune from the gloom? Choconomics
Do sales of chocolate rise as consumer confidence ebbs away? Market demand for chocolate appears to be growing strongly even as the credit crunch bites and prices rise on the back of increasing cocoa and oil prices.
Chocolate’s long-deserved reputation as a comfort food or snack at times of distress and worry seems to be well founded according to this excellent BBC video report from Nigel Cassidy. Goods whose demand rises during economic downturns have been coined as “counter-cyclical products”. Sean O’Grady writing in the Independent looked back to the emergence of the giant confectionery businesses during the Great Depression of the 1930s.
“During most previous slumps – and especially in the Great Depression of the 1930s – sales of chocolate have bucked the general trend. Indeed, the “Hungry Thirties” were a golden age for chocolatiers. Some famous names were invented then, including Marathon (now Snickers, 1930) and Maltesers (1936, then known as “energy balls”).”
Inexpensive treats are often the last thing we give up when our budgets are under pressure.
Rentokil falls into profits trap
How many of us still teach about conglomerates when teaching the economics of business growth? Rentokil Initial is one of the few remaining genuine conglomerates in British business.
The business which started life as a glorified pest controller has diversified over the years and famously - under former CEO Clive Thomson - clung onto a target of growing by 20 per cent a year until a recent downgrading of expansion prospects.
The Rentokil group now includes business that range from pest control to catering, e-security, washroom hygiene and landscape gardening and conferencing - but a series of botched takeovers and restructuring costs seem to have done them no favours as profits have declined. The BBC reports that nderlying profits for the first half of the year fell 55% to £39.3m.
The Guardian reports on their current difficulties and the pressure for some of their businesses to be sold off to protect shareholder value. The City Link parcel delivery business looks to be under real pressure given the increasingly competitive environment and the impact of sharp increases in transportation costs.
The 2008-09 Tutor2u Economics VLE
The tutor2u virtual learning environment for AS and A2 economics was developed and tested last year and used successfully with students from a group of different schools. The revamped version which incorporates new features within the upgraded Moodle version 1.9 will be available for teachers and students from the 1st of September. Details are below.
read more...»Something to chew over
It was a surprise at breakfast today to read the following in the births, deaths and marriages column of my newspaper
Mars Bar
Twix
Snickers
Aero
Then on closer inspection I realised I was reading the A-Bit_Chewy column
This pun reminds me of the cost pressures that confectionery manufacturers are under. Mars is the latest chocolate monalinth to report that the rising cost of ingredients is having a negative effect on their profit margins and that they will be looking to push through higher prices to wholesalers - this will feed through pretty much direct to chocolate-lovers in the days and weeks ahead.
This BBC report looks inside the Bournville chocolate factory in Birmingham
UK economy at recession’s door
Most students starting their economics courses this autumn have never known what it is like to live through a recession since the last time Britain went into a downturn was in the early 1990s. In fact, there have been only five recessions since the end of the Second World War: in 1974, 1975, 1980, 1981 and 1991.Is this all about to change? Yes.
read more...»Supplying the rising demand for wind power
This really is an excellent BBC news interview with the Chief Executive of Vestas one of the leading manufacturers of wind turbines in Europe. With rising demand for renewable energy supplies driven in part by persistently high oil prices - the pressure is on companies such as Vestas to deliver sufficient wind turbines to meet demand. The lead times between ordering a wind turbine and it becoming operational are long - including testing for wind strength and design of the wind farm site - a good example to use when considering elasticity of supply.
The Vestas web site provides a mine of good background information. The company claims to have close on 25% of the market share in wind turbines and has produced 35,500 of them in recent years. Vestas faces cost pressures of its own including the rising price of steel on world markets and increased transportation costs. Bottlenecks in the supply of key components also affects their ability to deliver orders on time. Vestas is committed to organic growth and is investing in a new blade technology factory in the Isle of Wight although only a few days ago the company announced the closure of a wind turbine tower factory in Campbeltown in Scotland.
New-generation wind farms inevitably create political controversy in the areas in which investment in wind farms is targeted - this scheme in Cornwall in no exception.
Out of pocket? Students face much higher inflation.
Students preparing to head to university in a few weeks time should be warned that the inflation rate they face is well above the official rate for the consumer price index - according to a new student price index calculated by the an economist working for the Open University. Economist Alan Shipman finds that for those in higher education, inflation for full-time students is nearly 7% because students spend a far higher proportion of their budget on items that have risen in price fastest over the past year – food, housing, travel, and the additional cost of tuition fees.
BAA faces break up after Competition probe
Michael O’Leary, CEO of Ryanair has called it the ‘best decision in the history of aviation ever.’ Colin Matthews, Chief Executive of BAA has slammed it as ‘flawed’. The Competition Commission has delivered a report which suggests that BAA should see three of its UK airports including two in London and one at either Edinburgh or Glasgow.
read more...»Cycling on a roll - competitive advantage in action
Much has been written about the factors behind the success of the GB cycling team in the Beijing Olympics. Some commentators are drawing parallels with the World Cup winning team in the Rugby World Cup of 2003 and for students of economics, there are some useful insights into what determines competitive advantage in markets.
read more...»Mushy peas and measuring the economy
Every month there is a torrent of macroeconomic data for the city scribblers to unwind and analyse. It was once said that God invented decimal points to make macroeconomists look interesting! This feature on the BBC news site is welcome because it reminds us of the wide margin for error when calculating huge numbers such as a nation’s gross domestic product. Policy making is difficult enough without the drag of using inaccurate, incomplete and out-of-date information on the economy.
“Counts and measurements swamp the news - of everything from the growth (or slump) of the economy to the extent of yobbish behaviour. They’re often reported as if straightforward child’s play, like counting your toes. That couldn’t be more wrong - the world is a massive mess; the task more like counting an ocean of mushy peas.”
The rest of the article is here
Hamish McRae on rising economics numbers in schools
Hamish McRae welcomes the boost in Economics uptake in schools and colleges
“The economic news may be troubling but there was some good news last week about economics as a subject. Amid the mass of stories about A-level students – the best pass rate ever, the grade escalation and so on – that that economics is becoming a much more popular subject rather escaped notice.”
Beet farmers look for better price to sweeten the pill
Here is a story that highlights the monospony power of a business when set against the determination of farmers to get a better price for their product. For some time sugar beet producers in the UK have been battling with British Sugar to reach an agreement for the contracted price for their beet harvest in 2009.
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Cross-Elasticity: Fertilisers and Bio-solids!
Countryfile is one of my favourite television programmes - a rich source of background on the ever-evolving rural scene and the challenges and opportunities facing the UK farming industry. Last Sunday featured a programme on the growing demand for and use of bio-solids in food production in the UK. It provides a good example of cross-price elasticity of demand!
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Gas coupons start to replace money in Zimbabwe
The San Francisco Chronicle reports that gas coupons and barter auctions are replacing notes as a medium of exchange in the hypinflation-ridden Zimbabwean economy. Private financial institutions say Zimbabwe’s inflation rate was about 12,5-million percent in May 2008 and has risen further since.
“Zimbabweans face acute shortages of local currency. Already gas coupons can be used to pay some household accounts. Many businesses also pay workers part of their earnings in scarce foodstuffs, or demand dollars for purchases, which is illegal.”
Good articles on unemployment
One of the key issues during this downturn is the extent to which recorded unemployment will rise back towards the two million mark - a reversal of more than a decade of strong labour market trends which has left the UK with one of the lowest jobless rates in the European Union together with one of the highest employment rates.
David Smith in the Sunday Times considers the state of the labour market
Labour isn’t working again
The BBC news report looks at prospects for graduates leaving university this year
Graduate jobs market stays strong
This Guardian article allows you to trace the UK’s unemployment figures all the way back to the dark days of mass unemployment close on three million people in the early 1980s
UK jobless figures
The Independent reports on last week’s big jump in unemployment
Jobless total jumps by 60,000
Sharp fall in London property “asking prices”
A healthy dose of realism in the market or a panic response to the absence of buyers, Rightmove finds that asking prices for London properties coming onto the market have fallen by over 5% in just one month - equivalent to shaving more than £20,000 off the asking value of housing. The asking price trend is a good indicator of the balance between supply and demand in the property market.
With mortgage finance drying up, falling demand is creating a glut of unsold houses on the market - the balance of power is switching firmly to potential buyers providing they have the finances behind them to buy.
And in this particular game of cat and mouse, if you are desperate to sell (i.e. you are a forced seller rather than a discretionary seller) then the pressure is on to drop the asking price to encourage some interest.
For many - the desperate state of the market is leading them to instruct estate agents to rent out their properties rather than settle for a much lower price when the transaction is finally achieved.
Selected info from the August Rightmove report:
UK
Average UK Property Asking Price £229,816
% Change in Month -2.3%
% Change in Past Year -4.8%
Average unsold stock of property per estate agency branch = 78
Greater London
Average property asking price = £379,162
% Change in Month -5.3%
% Change in Past Year -3.8%
