Salad days - a new leaf for Japan’s steel economy
What a terrific example of creative thinking from a leading Japanese steel cable producer. The bottom might have fallen out of the steel cable market, but that doesn’t mean that a newly constructed factory has to go to waste. Even in the depths of a global depression, people will still demand salad!
Japanese factory diversifies into salad production
What will be left of UK manufacturing?
There is a real danger that over twenty per cent of the output of UK manufacturing industry might be lost before this recession is over.
The Guardian reports that “closures, short-term working and the mothballing of plants led to a drop of more than 5% in UK manufacturing production in the final quarter of 2008, according to data from the Office for National Statistics.” Manufacturing output has now fallen by 10.5% in 10 successive months from the peak in February 2008.
The signs of a deep downturn in what remains of our industrial heartlands are all there to see. Profitability has been squeezed – the net rate of return is already lower than it was during the 1990-91 recession. Employment is contracting and at some time this year the number of people classified as working in manufacturing will dip below 3 million – just 12 per cent of the employed labour force.
The net trade deficit in manufactured products has continued to widen despite the possible benefits of a cheaper pound. One problem is that the weaker currency increases the costs of importing component parts but in a recession, producers find it difficult to pass on these costs to their own customers, hence a decline in profit margins. Manufacturing production accounts for just 18 per cent of UK real national output.
Student handout
UK_Manufacturing_Recession_Feb_2009.pdf
Negative mulitplier effects of a brutal outlook for carmakers
There seems to have been grim news from the car industry every day for the last week or so. Nissan and Jaguar are shedding jobs. In November Honda said they would shut down production for February and March, and today said they will extend that to cover April and May as well.
read more...»A Collapse in UK Vehicle Production
Car manufacturing and commercial vehicle production in the UK slumped to its lowest level for over 21 years last month as the sector suffers from the squeeze on credit and the broader economic recession.
read more...»Diseconomies of scale are human
One of John Kay’s phrases in his piece in the Financial Times yesterday will stay with me for the remainder of my teaching career. In a piece which focuses on the malign influences of political lobbying by huge economies of scale businesses that have been in relative decline for many a long year, John writes:
“That is true of the carmakers, whose problems are of much longer standing than the current downturn. In automobiles as in many industries, economies of scale are technological, the diseconomies of scale human. Human factors in business are generally more influential than technological ones in determining the long run fate of a company.”
This is a terrific article to use when discussing the root causes of government failures that can result from subsidies and bail-outs given to companies deemed “too large to fail.”
The remainder of John’s article can be found at his excellent web site
Some companies are too powerful to fail
Tyre makers tread carefully as car sales soften
Pirelli is a global name in vehicle tyres - a brand which ought to be able to ride out the storm engulfing the world of vehicle manufacturing. But as this BBC video shows, a downturn in the market demand for new cars is having an immediate effect right the way through the supply chain of the industry and Pirelli is having to take strong action.
Pirelli’s plant in Carlisle in Cumbria is slashing the hours available to their permanent workforce in response to a slump in orders for new tyres. Although most jobs look to be safe, the cutback in hours will hit the pay-packets of hundreds of workers in a region where per capita GDP is persistently below the national average. And this decline in real take home pay will affect retail businesses and the local housing market. The short video clip is a good example of derived demand and also the inter-relationships between markets - it is also a sign of a tyre company keen not to lose its grip.
Who are the Bank of England’s spies on the ground?
The Bank of England has a network of Regional Agents operating across the length and breadth of the UK. Think of the Regional Agents as a form of intelligence network designed to give the Bank of England a feel for what is really happening on the ground.
read more...»Manufacturing reaches a cliff
Here is a telling sign that confidence in UK manufacturing industry is ebbing away at an alarming rate. The latest Purchasing Managers Index doesn’t normally figure in the AS or A2 economics course - but the numbers for orders from buyers in industry look horrendous. A figure for the PMI of below 50 is said to herald a contraction in demand and output. The latest data shows sentiment and expected demand at its lowest levels for many a long year - indeed the weakest data on orders since the survey was created in 1992 - a recession year for the UK economy. I have tracked the PMI against manufacturing output for each month since 1992.
The figures will put increasing pressure on the Bank of England to cut interest rates in a week’s time by 0.25% or perhaps 0.5% - indeed it may move on interest rates as part of a concerted attempt by the central banks of the EU, the UK and the USA to bolster business and consumer confidence.
PMI data in PowerPoint
The Changing Pattern of Output
I have attached the chart in a PowerPoint file in case it might be of use as a teaching handout for student annotations and calculations. More detailed statistics on UK national output can be found from the Statistics Commission.
PowerPoint Chart
David Smith
The Party is over for Shrinking Financial Sector (Sunday Times)
A Dad and his Son go mining ..... once more
This is a heart-warming story from the BBC about the rebirth of Hatfield Main colliery which is back in action once more, coal-mining having been made economically viable by the soaring world price of coal.
read more...»Manufacturing gets a boost from UK government investment
British manufacturing industry perennially appears to move from one recessionary period to another. But although the sector as a whole has shrunk as a share of GDP and employment, we still have some world class manufacturing businesses out there often engaged in high-knowledge and high-value production - competing on quality and craftsmanship rather than mass volume. The decision this week by the UK government to build two new huge aircraft carriers is an important shot in the arm for a number of UK manufacturing firms and this BBC report says that seven UK-based firms have won contracts totalling £91.5m to build parts for the new carriers.
Corus, based in Scunthorpe, will get £65m to provide steel whilst five other English firms, in Dorset, Greater Manchester, Surrey, Suffolk and Lancashire, will build products ranging from control towers to landing aids. Corus ofcourse is now owned by the Indian conglomerate Tata!
But a good example of how government capital spending can have potentially large multiplier effects if the initial contracts are given to domestic businesses.
The rest of the BBC article is here
Fighting Industrial Decline
Peter Day’s perennially excellent series In Business looked this week at the survival of some maverick manufacturing businesses in the UK - how are they managing to survive and thrive when large parts of what is left of UK industry continues to suffer long run relative and absolute decline?
