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

Mervyn faces the Music

The Governor and his colleagues faced the press yesterday at the launch of the quarterly inflation report .... here is a selection of comments from them from questions fired from economics journalists, there is some great evaluation in here for AS and A2 economics students!

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.

My Word is my Bond

Clara Furse, the CEO of the London Stock Exchange offered a vivid and revealing insight into the many functions of a modern stock exchange in a globalizing world when she spoke to the Eton College Keynes Society on the 24th of April.

Stabilising demand - will the tax rebate work?

It is an interesting case study in how to stabilise demand and output at a time when consumer confidence is declining and the domestic economy has been hit by a sharp negative shock emanating from the housing market. The fiscal rebates will soon be landing in the post boxes of millions of US households ... the key question is how much of a temporary stimulus will this provide for the economy? The Financial Times has a good article on this today.

“The difference depends on how much of the rebate package will be spent and how much will go on imported goods. It is also related to the time-frame over which it is spent, and whether this expenditure will, in turn, trigger knock-on spending ..... In effect the government will nationalise part of US household debt – socialising some of the costs of the economic downturn. In doing so it may reduce the risk of a sudden pull-back in spending by overstretched consumers, even if it does not actually boost spending by much. Analysts estimate anywhere from 20 per cent to 50 per cent of the rebates will be spent over a period of four to six months.”

The impact will depend on the marginal propensity to save and spend the extra income and also the marginal propensity to import goods and services. With a weaker dollar raising the prices imported products, perhaps the propensity to import might be a little lower at this key stage of the economic cycle? The tax rebate is also targeted at Americans on incomes below the top of the pay ladder - whose marginal propensity to spend might be expected to be higher than the super-rich.

According to ABC news:

“More than 130 million U.S. households are eligible for the checks. Individuals could get up to $600, couples up to $1,200 with an additional $300 per child. In total about $120 billion will be doled out over the next two months.”

The rest of the FT article is here

US economy awaits stimulation from Bush’s tax rebate (Guardian)

Developments in the housing market

A selection of recent newspaper articles on the developments in the UK housing market

House price falls won’t send the UK into a recession
David Miles (a brilliant housing market economist)

Britain’s biggest homebuilder halts new projects
The Guardian

IMF gives bleak warning on dangers of global recession
The Times

UK housing slump fears overplayed
Financial Times

UK house prices will fall almost 20pc in next two years
Daily Telegraph

The social curse of the property boom

Charles Moore provides a welcome dose of reality in his article in today’s Telegraph. There will be victims of the housing recession - but Moore builds a convincing argument. Rising house prices do not create much in the way of meaningful wealth - they are simply a way of transferring wealth from one generation to another.

He writes

“The social benefit of property ownership is that it meets the human need for security and the human aspiration to rise in the world and establish oneself and one’s family. Soaring property prices kill both these things for the majority: they are a social curse.”

The remainder of his article “Why is everyone worried about house prices?” is here

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.”

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.

Chart of the Day: Falling UK House Prices

No surprises for our choice of chart of the day!

House prices have seen their biggest monthly drop since the 1990s recession, according to Halifax Bank of Scotland - the UK’s biggest mortgage lender. Let us include the usual caveat that you should never read too much into one month of data - but it seems to me that virtually of the housing market indicators including many of the forward-looking confidence surveys from households, estate agents and construction companies are pointing to a hefty downturn in house prices and activity in the market over the coming months whatever the soothing comments of the housing market economists from the leading banks and mortgage lenders. From a personal perspective, I am happy for property prices to decline for a couple of years having been out of the market for some little while. It probably won’t be a rout whatever the Daily Mail and Daily Express might suggest on their front pages. But the property boom is most definitely over for now and a dampening of the ardor for bricks and mortar as almost the sole route to greater wealth is, in my opinion, no bad thing at all.

PowerPoint Charts
House_Price_Inflation.ppt