UK Recession and Business Capacity - Teacher Presentation
This streamed presentation provides a snapshot of the latest economic data on UK business capacity. The slump in output in the British economy has left many businesses and industries with a huge amount of spare capacity and the negative output gap is expected to grow beyond 6% of GDP in 2010 according to the OECD. A high level of spare capacity (or productive slack) has important consequences for jobs, inflationary pressures, planned investment and business profits.
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Warning - Businesses at Risk from Economic Recovery
An excellent recent article in the ACCA magazine examines an interesting phenomenon - more businesses collapse at the beginning of a recovery than during the depths of a recession. Its all to do with working capital…
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UK Recession - Deep Very Deep
The latest set of macroeconomic indicators for the UK show the steepest quarterly decline in national output for over fifty years. GDP in real terms in the first quarter of 2009 fell by 2.4 per cent compared with the previous quarter driven lower by an especially weak construction sector. Construction output fell 6.9 per cent compared with a fall of 5.0 per cent in the previous quarter. The wider measure of industrial production was 5.1% down on the quarter and capital spending fell 7.5 per cent and is now 13.2 per cent below the first quarter of 2008.
Europe Revision: Fishing
Revision notes on aspects of the common fisheries policy of the EU and the crisis in the industry
read more...»Spare Capacity in Manufacturing
Spare capacity is a term that makes increasingly frequent appearances in AS macro multiple choice and data response questions. A survey from the British Chambers of Commerce finds that only 20% of manufacturing firms are operating at full-tilt whereas 40% of service sector businesses report that they are close to their capacity levels.
Spare capacity rises when orders and demand tails off leaving under-utilised capital and labour resources. We have seen this in the steep contraction in production in new housebuilding and in car manufacturing and this inevitably has knock-on effects for supply-chain businesses.
Operating below capacity can lead to a rise in the average fixed costs of production and therefore put pressure on profit margins. Little wonder that many manufacturing businesses have moved towards short-time working and have mothballed some of their production capacity.
This BBC Midlands news article covers a march for jobs in the West Midlands
Fishing for a problem for the tragedy of the commons
A new report from the European Commission finds that further sizeable reductions are needed in the size of the EU fishing fleet in order to bring about a more sustainable future for the deep sea fishing industry. The long term and possibly permanent and irreversible decline in fish stocks is an example of the tragedy of the commons - a form of market failure. The Common Fisheries Policy has been wildy condemned for failing to address the issue of over-fishing - not least the stupidity of fishing quotas that prompt many fishing vessels to dump unwanted fish overboard before reaching port. This new report argues that the capacity of the industry needs to be culled and this raises important issues about resource allocation andjobs and living standards in regions dependent on fishing.
“Across the EU, fleet capacity has come down, the commission says, but only about 2-3% per year. Meanwhile, technological improvements are making boats 2-3% more efficient every year - so the capacity reductions are having little effect.”
More here from the BBC web site
Cash and a buffer against difficult times
There is an old saying that “profit is a matter of opinion, cash is a matter of fact.”
How true this is as the economy staggers into a damaging recession. Well known high street retailers, airlines, numerous soccer clubs, farmers, suppliers to the building trade and multi-national car manufacturers have all been featured in the media recently as examples of “cash strapped” businesses whose future is in doubt because of rapidly draining cash balances.
Businesses across the board are actively looking for ways to conserve cash balances and improve their cash flow. From offering discounts for up-front cash purchases, cutting unnecessary overheads, lowering stocks of unsold products, to scaling back capital spending and curtailing share buy-back programmes, there are many ways that businesses can preserve their cash reserves - most businesses go just because they run out of cash not because they are loss-making.
It will come as precious little relief to businesses on the edge - but the Financial Times today publishes a list of some of the world’s biggest listed companies and their net cash position. Net cash is defined as cash and short-term investments or marketable securities minus debt.
The results are fascinating - three of the top four are Chinese banks with a total net cash between them of over £270bn. Berkshire Hathaway led by Warren Buffett is well out in front - indeed it has four times the net cash of a company such as Apple ($24.5 bn).
Here is the top ten:
Berkshire Hathaway $106bn
Bank of China $101bn
Ind and Comm Bank of China $89bn
China Construction Bank $81.5bn
Exxon Mobil $28.2bn
China Mobile $25.7bn
Apple $24.5bn
Cisco Systems $19.9bn
Microsoft $18.7bn
Google $14.4bn
Ninendo $11.0bn
Roche $9.9bn
The Ft reports that
“Twenty of the largest listed companies in the world are sitting on a combined cash-pile of $570bn (£390bn), demonstrating how some of the world’s biggest groups retain substantial firepower in the current downturn.”
This includes the firepower to make corporate acquisitions given the steep fall in share prices.......but above all it acts as insurance against business failure in such difficult economic times. In a recession - liquidity is king and queen all rolled into one.
Companies hoard cash against harder times
Economics of fishing
The BBC today has two stories on the economics of fishing. Firstly the government has announced a £5m plan to fund the de-commissioning of some of the UK’s in-shore fishing fleet in a bid t oreduce what the government regards as fundamental excess capacity in the industry.
£5m fund to scrap fishing boats
This BBC video looks at the background
Secondly the rising stocks of cod in the north sea has led in part oa rise in the size of the annual cod quota given to scottish fishermen by the European Union as part of their common fisheries policy. But the thorny issue of discarding excess fish remains unsettled. The quotas refer to landed cod which encourages fishing vessels to dump much of the fish they have caught before they reach home in order to avoid fines for over-fishing. The result is a deadweight loss of scarce resources in an industry already suffering from the long term decline in fish stocks.
Fishermen land cod deal at talks
See also “Scots anger over discarded fish”
Why are the car companies cutting production?
This week Nissan became the latest car manufacturer to announce a scaling back of production in the face of falling demand for new vehicles. Nissan, which is 44%-owned by Renault SA, of France plans to halt production at its huge plant in Sunderland for a fortnight and shorten production runs on its main assembly lines for a further three weeks in the lead up to Christmas.
Housing - a buyers market
This BBC report covers the RICS survey which finds that average asking prices are sliding at a rapid rate. When properties sell for a value close to their initial asking price, it is a safe bet that there are sufficient prospective buyers out there for sellers to hold on before accepting a bid. When asking prices are on the slide, this is indicative that weeks and months of waiting around for people to have a look round prompts home-owners to shave their valuations or perhaps take their properties off the market until market conditions improve. The latest figures from the RICS do indeed show a steep decline in monthly sales and a rising stock of unsold homes. This is classic microeconomics - unsold stocks drive prices lower.
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