The Cracks are Widening
It is a potent cocktail
Collapsing mortgage supply
Sharp fall in demand for home loans
A significant decline in average house prices with the prospect of more to come
Distressed homebuilders announcing very large job losses
A precipitous fall in land values raising fears of bankruptcy among some of our leading home-builders
The tipping point has been well and truly reached .... this housing recession is going to be very deep and - in the absence of some favourable external headwinds or imaginative and decisive policy intervention from a government that has long since lost momentum and credibility - the knock-on effects on the wider economy are likely to be widespread.
The Observer
Homebuilders face disastrous £3bn landslide
Sunday Times
Falling into the abyss?
The Guardian
From building sites to sofas, the crisis starts to hit home
The Telegraph
Is the UK economy headed for a recession?
The Telegraph (Roger Bootle)
The signs of a recession are all here
Defining a recession
Larry Elliott offers a timely short piece on differences in the definition of a recession. Whilst Brooke Masters and Norma Cohen in the FT look at the economic tea leaves after a week when so many of our bell-weather businesses such as Marks and Spencer, John Lewis, Taylor Wimpey and Bradford & Bingley.reported bad news.
Discretionary income takes a battering
Ernst and Young have published a survey of household discretionary income for the UK over recent years. Their definition of this measure of income is the income available for spending after tax contributions and essential monthly household bills and they have found that the average household is now 15 percent worse off than it was five years ago. It is interesting that we see so many different surveys and alternatives measures of living costs and guides to living standards these days as confidence in the official data such as the CPI have lost credibility and support.
read more...»Denmark the first to enter recession - form an orderly queue please
Denmark has become the first European nation to go into recession on July 1—economic output officially shrank for two quarters in a row. Known for its high taxes and expensive cost of living, Denmark was not alone in enjoying a property bubble over the last decade, but the boom is well and truly over and a combination of falling wealth, and real incomes eroded by the spiralling cost of living has contributed to the economy moving into recession territory.
Spain, Ireland and the UK dont look to be too far behind!
Here is a short report from the Guardian
Purchasing data hints that a recession is near
A double batch of new data on confidence among purchasing managers in manufacturing and services suggests that economic conditions in the UK are deteriorating quickly increasing the risks of a recession in the next twelve months. The Purchasing Managers survey’s headline index of overall conditions in the economy’s most crucial industries slumped to just 47.1 for last month. On a scale where any reading under 50 indicates contraction, this was the second month in a row that the numbers came in well below 50 and the downward slide is clearly apparent in our chart. Indeed this was the weakest reading on sentiment among buyers of raw mateials and components since the Autumn of 2001 and the immediate aftermath of the 9-11 attacks. Purchasing Managers data is often regarded as a lead indicator of turning points in the economic cycle.
Recession fears - signals from the real economy
This eleven minute report from the Today programme is fasincating ... looking at real signals from construction, retailing and advertising. James Naughtie interviews M&S Chairman Sir Stuart Rose, Nick Edwards, of Construction News, and businessman Sir Martin Sorrell. All recessions are different but they all have a proximate cause… a tipping point when expectations change and both businesses and consumers change their behaviour and simply stop spending and producing as much as they had become accustomed to.
Businesses hold the key to the next stage of the cycle
These are turbluent times for the economy - but the macroeconomic numbers of output, investment, jobs and pay are simply the aggegate of many thousands of decisions taken by individual businesses across the length nd breadth of the economy. How the UK economy emerges in the current downturn will depend crucially on the strategies adopted by the busines sector. It is a huge challenge - to make money and protect margins in a time when cost pressures are enormous, when demand might be slipping away and productivity growth is slowing down as capacity utilisation drops.
read more...»The here and now on inflation
There will be many references to the stagflation of the 1970s as we head into dangerous times for inflation over the next year or so ... will inflation expectations take off and create havoc for the Bank of England as it seeks to bring inflatyion back into target range? Hw much of the renewed burst of inflation we are seeing at present is home-made and how much is coming from external forces over which we have little or no influence?
Three articles on the inflation issue were published today all of which are worth browsing:
Collapse in savings points to a very rough ride
Karen Ward from HSBC flagged this quite startling new figure for the UK savings ratio in her excellent talk on the UK economy at the London Conference on Friday. According to the Guardian, “Consumers are running down their savings to maintain spending, with the household saving ratio more than halving from 3% to 1.1%, the lowest since 1959.”
read more...»Searching for new acronyms!
Ok, the NICE decade seems to be over for now (NICE stood for non-inflationary consistent expansion) but what should we replace it with?
read more...»Central bank impotence
David Smith writes about monetary policy in his Sunday Times column today - and there are some terrific evaluation points of use to AS and A2 students. Robert Peston is presenting a radio 4 programme on this very topic on Monday 19th.
read more...»Canny pricing in a slowdown
There is a super feature on pricing strategies from Adam Jones’s management blog on the Financial Times web site - available here
Canny businesses are willing and able to adjust their pricing strategies to suit ever changing business consumers. The key seems to be in having good market intelligence about which consumers have a demand that is sensitive to price and those who spending on goods and services is affected more by changes in real take-home income. Deep discounting is often observed in an economic slowdown or outright recession as businesses look to shift unsold stock, maintain sales volumes and generate extra cash to tide them through the tough times. But as the FT blog points out, offering discounts to consumers can risk unleashing an unwelcome price war (which damages profit margins) and overly-aggressive discounting can ultimately damage the brand.
There is a bit more on pricing do’s and don’ts in a recession here
NICE decade is over
Mervyn King declared that the NICE decade was formally over in his Inflation Report published today – NICE stood for non-inflationary continuous expansion (a good term to use in the exam) – but the combination of sharply rising food, energy and fuel prices is driving inflation higher whilst contributing to a fall in real incomes and a wider economic slowdown.
read more...»Setting rates is no longer kids stuff
According to Roger Bootle writing in today’s Telegraph. The MPC does face an acute dilemma with evidence of surging cost push inflation and the real possibility (probability?) that CPI inflation will overshoot the 3% ceiling at some point in 2008. But Bootle argues that if the MPC is too cautious over interest rates, fearing a return to a wage-price spiral, then we might well suffer the slump in real output and jobs that characterised attempts to put the lid on rampant inflation in the 1970s and late 1980s.
read more...»A cluster of profit warnings
Rarely a day goes by without one or more household names in the world of business, finance and commerce releasing a profit warning to the city. Listed companies are required to do so - releasing information that might materially affect the market value of their business - but the rash of profit warnings from different sectors of the economy is a reflection of the demand and cost pressures facing private sector companies. The squeeze is on and it will be interesting to see how corporate Britain reacts and responds to these challenging times.
Parcel problems ruffle Rentokil
Starbucks reports falling profits
Bovis sets out new profits warning
Downturn sparks Electrolux loss
Revision: Recessions
“What’s the difference between a recession and a depression? A recession is when your neighbour loses their job; a depression is when you lose yours.”
read more...»Interest rates, exchange rates and annual holidays
As expected, the Monetary Policy Committee of the Bank of England has cut the base rate by 0.25% today.
read more...»Policy conflict for the UK economy?
The IMF is forecasting a slowdown in global growth to 3.7% in 2008 and 2009. This is in contrast to recent growth rates of over 5%.
read more...»Economic Resilience?
Gordon Brown and his Chancellor, Alistair Darling, have been keen to stress that the economy is ready to weather any storm that hits it. Although the economy remains standing, despite recent turbulence in the financial markets, it does seem like tempting fate to claim that the economy is so resilient, and capable of withstanding any disturbances that might come along. So what supports their statements, and what are the risks to the economy? This post looks at a few of the problems on the horizon.
read more...»US Recession Watch: Hold onto your Hats!
The latest Standard & Poor’s/Case-Schiller house price index shows the biggest year-on-year decline in real estate prices for 21 years. Hold onto your hats - US Treasury Secretary Henry Paulson has come out with some very bearish statements on where the US housing market will head before the worst is over.
read more...»Getting real…?
Despite continuing problems in the financial sector, UK consumers are defying the odds and doing what they know best - shopping.
read more...»
