The slow drip-drip of bad economic news has turned into a daily downpour. A
torrent of negative economic data is hitting consumers, employers and
investors.
Yesterday morning British shares entered a bear market; Persimmon, Britain’s
biggest housebuilder, announced 1,100 job cuts; the Government reported
another fall in house prices; and Savills, the estate agent, admitted a
collapse in sales.
Jacques Vert, the women’s wear retailer, posted a fall in profits and gave
warning of dwindling demand; Siemens, the German manufacturer, said it would
cut 16,750 jobs world-wide, raising worries for its 20,000 British workers;
and Bradford & Bing-ley’s share price slumped by another 19 per cent.
Whether Britain is, or soon will be, in recession is being debated hotly. One
can only be sure six months after the event because a recession is defined
as two successive quarters of shrinking national output.
What is certain is that the mood is souring by the day.
Evidence is piling up that the job market is turning towards slump. After
years in which unemployment has steadily fallen, the benign trend is turning
nasty as layoffs from hard-pressed businesses start to send the jobless
count climbing. The latest official figures showed the number of people out
of work and claiming benefits rising in May for the fourth month.
At the same time, the Government’s preferred measure of joblessness, based on
survey data, shows unemployment up by 38,000 in the three months to the end
of April.
The Organisation for Economic Cooperation and Development predicted in a
recent report that 100,000 jobs could be lost in Britain over the next two
years. Roger Bootle, of Capital Economics, predicts an eventual rise in
unemployment of as much as a million.
This week the Recruitment and Employment Confederation said that its latest
surveys showed that employers’ demand for permanent staff has fallen for the
first time in five years.
Policymakers are boxed in. The Bank of England’s Monetary Policy Committee,
which starts its two-day monthly meeting today, is in no position to cut
interest rates to ease the pain because of a worrying blowout in inflation,
which obliges it to apply the brakes when it might otherwise be pressing
down on the throttle.
The pain of the slowdown so far has been concentrated in a few sectors such as
housebuilding and retailing, but no area of business is immune.
In the last recession, between May 1990 and January 1993, unemployment
rocketed from 1.58 million to 2.94 million: people were losing their jobs at
the alarming rate of more than 9,000 a week for two and a half years. Only
the gloomiest forecasters believe Britain is heading back to those times,
but cracks are appearing in most sectors, suggesting job security is going
to get more precarious.
Property and construction
Vulnerability rating 9/10
The construction sector has been hit by a series of job cuts at the big
British housebuilders. Persimmon’s cuts yesterday add to another 1,100
losses to 3,600 already announced by Taylor Wimpey, Barratt Homes and
Redrow.
Jobs in commercial property are less likely to suffer as big office
construction projects such as the Shard of Glass and the Heron Tower keep
jobs afloat though other projects are being postponed.
Estate agents have made thousands of job cuts, with more expected to follow.
Until house prices show signs of bottoming out, the pain will go on. Only a
small fraction of would-be apprentices in the construction industry are now
getting places, it emerged yesterday. The main construction union has called
on the Government to intervene to boost the chances for young people to get
on the training schemes.
Ucatt said that last year Construction Skills, the industry body in charge of
administering apprenticeships, received 45,000 applications, of whom 8,000
got places.
Retailing
Vulnerability rating 6/10
At least 100,000 jobs will be cut by Britain’s retailers over the next two
years as the consumer slowdown puts intense pressure on high street stores,
according to Richard Hyman, strategy director at Deloitte and a close
watcher of the high street.
Tesco is among those to have axed head office jobs already this year. More
than a dozen companies have fallen into administration, including Ethel
Austin, a Merseyside-based discount fashion chain that employed 2,800
people, and ScS Upholstery, a furniture business. While some corners of
retailing, like web-based sales, may be holding up comparatively well, the
high street is feeling the pain, as Marks & Spencer’s seismic profit
warning last week underlined.
The retail sector employs one in every nine workers.
Leisure
Vulnerability rating 5/10
Already hit by the smoking ban, soaring food and energy costs and poor
weather, the pubs and restaurants sector, a huge employer, is struggling,
though it is hard to calculate how far the consumer downturn is responsible.
Punch Taverns, Britain’s biggest pub company, reported a decline of more than
3 per cent in sales recently in both its tenanted and managed operations,
while Greene King, the Suffolk brewer, announced last week a small number of
redundancies in its warehousing and distribution units.
The big restaurant chains are generally reporting resilient trading, although
few have felt able to raise prices to mitigate food-cost inflation. The
hotel sector has also seen robust trading, although some operators are
starting to report some softening in bookings for business meetings and
weekend leisure breaks.
Analysts say that the hotel sector often lags behind the wider economy, and
there is evidence that hoteliers are starting to put investment on hold and
trimming jobs in anticipation of a more material deterioration in trading.
TUI Travel and Thomas Cook have both reported remarkably strong trading.
Most observers say the full impact of soaring fuel costs and the strong euro
will hit sector takings next summer.
Media
Vulnerability rating 7/10
A wave of alarm has spread through the media sector, newspaper advertising
having fallen sharply and broadcast revenues being under increasing
pressure. An advertising downturn is often a lead indicator for an economic
recession, although the sector is a far smaller part of the economy than in
the last recession in the early 1990s.
ZenithOptimedia and GroupM, which buy space on behalf of advertisers, have
predicted that tens of millions of pounds will be wiped off advertising
budgets in the next year.
Trinity Mirror has found itself at the heart of the storm, admitting last week
that advertising at the Daily Mirror and its sister titles had
collapsed by between 12 per cent and 14 per cent in May and June. Trinity’s
market value has collapsed from £1.5 billion a year ago to £217 million.
Local and regional newspapers such as Johnston Press have also been hit
particularly, the result of the slowdown in the property market. ITV is
another victim, its value falling 65 per cent in the past year.
Job cuts have started. Global Radio, the owner of London commercial radio
station Heart 106.2, says that they are “a prudent reaction to the current
economic climate”.
Manufacturing
Vulnerability rating 3/10
Manufacturers on the consumer front line are feeling the squeeze. But for many
high added-value businesses, particularly big exporters, the downturn is yet
to manifest itself, the EEF manufacturers’ organisation says Despite
domestic orders and sales falling to a seven-year low, the weak pound
against the euro is helping to buoy exports. So much weak manufacturing was
wiped out in previous recessions that only the strongest survived. However,
manufacturers are also braced for a potential fallout if the consumer
squeeze feeds back to heavy industry. The EEF said: “It would be naive to
think there will be no effect but there is no sense of impending doom in our
recent figures.” So far investment intentions are also holding up, according
to the EEF.
Financial services
Vulnerability rating: 7/10
Banks have been announcing dreadful losses for months. Financial institutions
are under pressure from burnt shareholders to curb costs, especially wages
bills. Credit Suisse, UBS, Citi-group, Bear Stearns, J P Morgan and Merrill
Lynch are among the biggest City employers to announce job losses. J P
Morgan forecasts that 40,000 City jobs could be shed over the next year.
Experian, the credit-checking group, believes job losses in the banking and
insurance sectors could reach 40,000 over the next three years.
Defining moments
— A recession is defined as two consecutive three-month periods
of falling economic activity. But as official figures for gross domestic
product (GDP), the measure of economic growth, are not released until nearly
a month after the end of the quarter – eg, GDP growth for January to March
is published in late April – it is impossible to know for certain that a
country is in recession until after the event
— In the US, a body called the National Bureau of Economic
Research (NBER) decides if the country has fallen into recession. It has no
legal remit to do this, but its opinion is highly regarded. As well as
looking at economic growth, it also takes into account employment figures,
retail sales and industrial production
— While a country may be in a “technical” recession after a
couple of quarters where the economy has fallen slightly, there is a school
of thought that says that a country is not in a full-blown recession until
GDP falls year-on-year, rather than quarteron-quarter
— A severe downturn for a prolonged period of time turns a
recession into a depression
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Christopher H, Canberra, Australia - I'm laughing my guts out at your post. Very well put!
Glynn, Kingston , Canada
The currency markets have for a while been telling us that Sterling is not wanted having fallen by 20 % against the Euro in the last 18 months. Gordon brown may still try to put the blame on the US subprime market but he as Chancellor sowed alot of the seeds for this mess and as PM he must now reap
michael, chelmsford,
Not heresy Tom but you are forgetting the low value of Sterling, which is why the UK is importing inflation and needs a rise in the base rate to lower this.
Paul, Coventry,
There is no need to raise interest rates. The Government needs to cut back on its spending, cut back on the number of wasteful jobs it has and, lo and behold, it will be able to reduce taxation giving people the chance to help the true economy by spending their own money.
Heresy?
Tom Mein, Chorafakia, Crete
A recession is when you lose your job. A depression is when I lose mine.
Christopher H, Canberra, Australia