The consumer crisis will really show its teeth as more jobs vanish The consumer crisis will really show its teeth as more jobs vanish
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  1. #1

    I Am Legend

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    Default The consumer crisis will really show its teeth as more jobs vanish

    Until recently it has been possible to believe that we are in a phantom crisis. Banks may be all but bust and house prices sliding yet out there in the real world things seemed to be going on much as before. London restaurants were full to bursting. The shops seemed busy. No wonder that a lot of people thought that the crisis was something stirred up by the media.

    For everyone who has believed that, last week's unemployment figures should have come as a wake-up call. The claimant count rose by 138,000 in February alone, the biggest monthly rise since the series began in 1971.

    Unemployment is now back to where it was about 10 years ago and yet we are only at the beginning of what will prove to be a long rise.

    Recessions do not hit everything all at once. As I said last year, you should think of them as a plague which spreads from sector to sector.

    Unemployment is the hinge which links the corporate sector to the personal. When problems hit companies they do not immediately fire employees. They initially bear the pain and hope that things will get better but, once they can bear the pain no more and/or they believe that things will not get better, they ease their own position by reducing headcount – and thereby pass their pain on to employees. They, in turn, then reduce their spending, which then transmits the pain back to companies through reduced orders and output, and so on and so forth.

    The current crisis began in the banks. There will be much more bad news to come as ordinary loans to consumers and businesses turn sour. Yet, with massive public support already in place and more on the way if needed, I suspect that the banking aspect of this crisis may already be past the worst.

    But don't be fooled into thinking that this means the recession is almost over, for the consumer crisis is only just beginning.

    As unemployment rises, plenty of innocent families will feel the backwash from the financial excesses of recent years.

    Admittedly, retail sales have so far held up surprisingly well. This won't last.

    We get the official measure for February retail sales this Thursday. They could easily register a monthly fall – the first of many. I think that real consumer spending will fall by around 3pc this year and around 1.5pc next. That will make the employment situation worse.

    On the broadest measure, I reckon that unemployment will rise to 3.5m, compared with its current level of 2m and its trough of 1.6m at the end of 2007. The unemployment rate could peak at around 11pc, broadly equal to the peaks seen in previous recessions.

    Of course, many economists say that the importance of the unemployment figures is exaggerated. Unemployment, they say, is a "lagging indicator", and is not useful as a forecasting tool. Once output starts to pick up, they say, we will be able to say that the recession is over, yet unemployment will still be rising.

    They are right about that. Indeed, in the past three recessions, it took between one and three years after GDP had troughed for unemployment to peak.

    I reckon that GDP may start to rise again by the end of 2010. If that is right, then, even allowing for shorter lags this time, the earliest we could see unemployment peaking would be the middle of 2011 but the peak could easily not be seen until 2012.

    This, and not the technical measure of recession used by economists, gives the better gauge of both the human and economic disaster that has befallen us. Modern economies are used to growth – that is what they normally do. So the technical definition which signals the end of a recession, when output starts to grow again, is nowhere near demanding enough.

    Recessions are all about resources lying idle in the midst of want and the most important of all resources to be lying idle is people. So, in both a human and a real economic sense, the recession will not be over until unemployment gets back to its minimum sustainable level. That might not be for 10 years.

    Compared to previous recessions, this one is likely to be spread more evenly across different types of workers, different sectors and different regions. It won't just be the manufacturing north that is hit, as it largely was in the recession of the early 1980s.

    In another sense, the pain will be spread very unevenly. On past form, we should expect some big drops in pay inflation. In the early 1980s, average earnings growth slowed from 11pc-plus to a trough of 5pc. In the early 1990s, it slowed from 10.5pc to a trough of 3pc. I expect overall average earnings growth to slow from 3.5pc last year to less than 1pc by 2010. This sounds pretty grim for workers but remember the coming collapse of inflation and the shift into deflation.

    In this environment, for those people who retain their jobs, even minimal pay rises will generate increases in real incomes. For those with hefty mortgages, the fall in interest payments implies an even greater rise in disposable incomes. But those who have lost their jobs will be snookered – and any savings they have will yield next to no interest.

    The greatest contrast, though, is between the public and private sectors. On the latest figures, while pay in the private sector was down over the year by 1.1pc, in the public sector it was up by 3.7pc.

    If you are employed by the public sector you don't know what recession is all about. No reductions in salary or disappearing bonuses; no worries about your pension; no anxiety about losing your job; no increased tensions at work because of the pressure. You just sail blithely on.

    Whenever I travel about the country I never cease to be struck by the depth of anger about this contrast. It is going to intensify.But this contrast will be temporary. For there will be yet another stage to the recession.

    As soon as the economy starts to recover, and maybe even before, the next government
    will have to bring in massive
    cuts to public expenditure programmes. If it is serious about improving both the financial position of the government and the productivity of the economy, these will have to involve substantial cutbacks in public sector employment.

    So the pain in the public sector could be intensifying well after the private sector position has started to stabilise. Indeed, if this economy is to return to health, it will have to.
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  2. #2

    Richer than sasguru

    DimPrawn is always on top

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    If you are employed by the public sector you don't know what recession is all about. No reductions in salary or disappearing bonuses; no worries about your pension; no anxiety about losing your job; no increased tensions at work because of the pressure. You just sail blithely on.
    Indeed. Public Sector IT contracts are where you want to be now.
    SARS-CoV-2 - Finally something from China that still works as designed.

  3. #3


    AlfredJPruffock has more data than eek

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    Just ssaw this on a blog - seems to epitomise the state of the UK

    Blair, Brown et al are corrupt to their core.

    They are self serving sycophantic gophers who take whatever they can whenever they can.

    They sidle up to multi-national giants and self-preening celebrities and prostitute themselves and this country at the alter of greed and power and cliche riddled sound bites.

    They lie and prevaricate about everything and avoid whatever culpability for corporate irresponsibility and obfuscation as they crawl to hold onto power. If Thatcher sacrificed our society in the pursuit of right wing idealism, Blair has sacrificed it in pursuit of mendacity and self-aggrandisement, where the power dressed nu-Labour luvvies manage us within austere budgetary restraint whilst they oil their own professional wheels with social largesse and surreptitious access to slush funds which rewards those who maintain the deception.

    Brown must be stupid if he believes that the average Joe in the UK is unable to see through the web of deception this government, in tandem with banks/industry, has spun.

    It is only a matter of time until the path is unfurled back to the very highest level of government.

    Blair - war criminal!! And I voted Labour and can remember with a sense of optimism and pride the front page of the Observer after his famous first election victory. The only politician who seems now to have any humility is Cable!!

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