Economy January 30, 2014
According to the Institute for Fiscal Studies, the average British household is 6 per cent poorer in 2014 than it was before the 2008 financial crisis. The think tank has claimed that households are unlikely to recover in the period leading up to the 2015 general election.
The Institute for Fiscal Studies is “trusted by left and right” political organisations, as reported in a recent Financial Times profile. Political analysts believe that data indicating households are no longer as well off as they previously have been could be a major challenge for the government as it prepares for the election.
Critics of the government’s economic recovery policies, particularly those from the Labour Party, claim that the purported recovery has involved “no recovery at all” for the “working people” of the UK. The projections released by the IFS are the first real indication of household income growth to become available since 2011/12.
According to the IFS, household income will increase slightly during this financial year, but will likely fail in reaching pre-crisis levels by 2015/16. Spending cuts and weak wage growth have been linked to the slow improvement in household income for most of the UK.
After the data was released, both Labour and the government tried to use it against their opponents. Chancellor George Osborne claimed that the country was poorer as a result of “Labour’s great recession” and stated that median household income will rise in 2013/14.
A Labour spokesperson said that the data proves “working people are worse off under the Tories.” A spokesperson from the Trades Union Congress – an interest group for union members – stated that “last year’s recovery failed to improve people’s earnings” and warned that Britain could face “a decade of pay stagnation” if things don’t change.
The IFS report indicates that the UK’s higher-income households have experienced a larger proportionate decline in income than low-income ones. It also states that low-income households have been more affected by inflation in the period since 2008.Read more
The Bank of England’s chief economist Spencer Dale believes that the UK economy will need “a number of years” to fully recover. The economist also believes that the currently low interest rates will remain at a flat or slow growth rate for a “sustained period” as the economy slowly moves back in the right direction.
Despite the somewhat conservative outlook on economic recovery, Mr Dale believes that the United Kingdom is moving in the right direction. He recently noted that the UK housing market is improving at a sustainable level and that there is only a slight risk of a housing market bubble developing.
Mr Dale said that the UK housing market could “quickly go from normal levels to overheating” and cause problems for property investors, but noted that the UK is currently “not there now” and that housing growth has been within safe limits.
The chief economist sits on the Bank of England’s Monetary Policy Committee – a committee responsible for setting the country’s interest rates. Last week, members of the committee unanimously voted to leave the Bank of England’s interest rates at 0.5% and plans to closely watch unemployment when determining future action.
Bank of England governor Mark Carney has said that he will not even consider an increase in interest rates until the nation’s unemployment rate has fallen to seven per cent or less. While unemployment is on track to fall below 7% within the next few years, the Bank has indicated that it will not automatically lead to higher rates.
The views of Mr Dale seem to reflect those of others at the Bank of England, which has largely voiced its approval of current recovery efforts. The MPC claims that the economy is undergoing a “sustained recovery” and that inflation and other common concerns are not major risks.Read more
US economic progress exceeded expectations in October, with 204,000 jobs added to the economy. Economists and employment experts were pleasantly surprised by the statistics from the Labor Department, which indicate that the 16-day shutdown of non-essential US government services did not affect job creation.
The new job figures are one of several positive indicators for the US economy. Over the last month, other reports have indicated that the United States economy grew at 2.8% annual growth page – a significant increase above the growth rates touted by major economists and financial commentators.
Investors believe that an extended period of economic growth could lead to a rapid decline in the economic stimulus packages currently being operated by the Federal Reserve. The central bank has hinted at reducing its stimulus programme over the past year but uncertain economic figures have left it largely unchanged.
Analysts had expected an increase in employment, but most estimates were below the 204,000 jobs created in October. Markit chief economist Chris Williamson said that the new figure “defied” expectations, and that most “analysts were expecting a mere 125,000 rise” in the number of new jobs in the United States.
Despite the increase in new jobs, the unemployment rate throughout the US rose by a slight amount, increasing from 7.2% to 7.3% for the month. Analysts believe that the shutdown of non-essential government services resulted in many government employees being classed as “unemployed” during the survey period.
Other economic concerns include a decline in consumer spending – considered to be an essential element of US economic growth. Consumer spending accounts for more than 60 per cent of US economic activity, and has slowed in the past quarter to rates that have concerned analysts.
However, economists believe that an increase in the number of people buying new homes, as well as rising export figures, show a healthy future for the US economy.Read more
After months of concern about slow economic growth, the second-largest economy in the world is once again moving forward. Chinese economic growth sped up in the last three months, reaching a 7.8 per cent increase from the same period last year.
New figures show that Chinese economic growth is intensifying, with the previous quarter generating a lower 7.5 per cent economic expansion. The biggest increases were achieved in industrial output and domestic retail sales.
China has been a prominent feature in economic news stories recently, with many of the world’s top economists fearing a lasting Chinese slowdown. The country has had one of the highest growth rates in the world for over a decade, but recent declines in its growth rate have left many economists on their toes.
However, the recent 7.8 per cent growth statistics are significantly ahead of China’s own 7.5 per cent goals, proving that the world’s second-largest economy and largest manufacturing nation certainly has the ability to rebound from slow growth.
China has been attempting to increase its domestic consumption in recent months as demand from key markets such as the United States and European Union slowed down. The country has historically been heavily dependent on exports – a problem that analysts believe is being resolved by the growth of its own consumer class.
The Chinese government has taken an active role in the recovery. VAT for small and medium-sized businesses was suspended earlier this year, giving many companies a chance to expand their operations at a point where international demand was often on the way down.
Government departments have also announced plans to open the Chinese railway system to foreign investors and construction firms, allowing foreign companies to take an active role in the development of new Chinese infrastructure.Read more
United States businesses added 176,000 new jobs to the economy in August, new data from payroll processing company ADP claims. The new data has given many economists optimistic views of the US government’s upcoming jobs report.
The employment report, which will be released this Friday by the United States Labor Department, is expected to show a short-term increase in jobs after many private sector growth signals diminished in recent months.
The ADP report confirms many of the predictions, showing that a large increase in jobs has occurred in the last month. The majority of the new jobs in the report have been added by small and mid-sized businesses, indicating a possible new trend.
Of the 176,000 jobs added during August, over 71,000 were at small companies and local businesses. An estimated 74,000 were at mid-sized businesses. Finally, 32,000 new jobs were created at large companies, bucking previous employment trends.
As with previous employment progress, some sectors fared better than others. The biggest winners were the professional services sector, with 50,000 jobs, and trade, transportation, and utilities, which added 40,000 new jobs to the US economy.
The increase in housing sales across the United States resulted in 4,000 new jobs in the construction industry. Economists and political commentators have noted that a growing real estate market activity could lead to large-scale US job creation.
While the report has resulted in optimistic assessments regarding the government’s upcoming job report, some analysts believe that there could be a major difference in the findings of the reports. A previous Labor Department report estimated that only 161,000 jobs were created during July, compared to 200,000 from the ADP.
ADP has partnered with Moody’s Analytics to provide the reports, which, despite a range of initial accuracy issues, have come closer to matching US Labor Department reports in recent months.Read more
Manufacturing activity in Britain is on the way up, according to new PMI figures that put the industry at its highest growth rate since 1994. The industry, which makes up 10 percent of the UK economy, has regained 2.5 years of ground lost in the financial crisis.
The Purchasing Managers Index (PMI), a measure of manufacturing growth tracked by European economic analysis group Markit, reached 57.2 in the latest survey. The metric, which uses 50 as baseline economic stability and anything greater than 50 as an indication of growth, is used to assess worldwide industry activity.
August was the fifth month in a row in which the UK manufacturing sector grew, and one of the fastest periods of growth on record. Orders from UK manufacturers are at their highest level of growth since the early 1990s, according to the data.
Rob Dobson, a senior executive at the data vendor, commented that UK-based plants are ‘booming again.’ The data from Markit has been backed by similar surveys from other financial firms, reinforcing the belief that UK manufacturing is on the rise.
Dobson continued to state that ‘orders and output are growing at the fastest rates for almost 20 years,’ and that rising demand from customers based within the UK was driving the economy forward, alongside Eurozone trading partners.
The EEF, a UK-based trade group specialising in manufacturing, confirmed that UK manufacturing was on the rise. The trade group has revised its predictions for the remainder of the year upwards, believing that the surge in manufacturing activity will continue into 2014.
For UK-based manufacturing firms, it’s good news. For the economy as a whole, and particularly the tens of thousands of skilled manufacturing staff made redundant at the peak of the financial crisis, the industry’s return to form is great news indeed.Read more
Economy August 8, 2013
After months of lagging growth, China’s import and export figures grew during the month of July. Economists have expressed concerns that China may fall into a deep economic slowdown due to lacklustre growth in recent months – something that’s been rebuffed by the recent increase in export activity.
The new figures, released by the Chinese government, show that exports increased by 5.1 percent relative to their previous figure twelve months ago, beating out a 3.1 percent growth figure published during June. Imports were up 10.9 percent over the last twelve months, showing a strong recovery from June’s import activity.
Chinese export activity has slowed down significantly over the past few months – an indicator, for many economists, of a looming slowdown for the manufacturing-based nation. The recent surge in import and export activity, however, shows that China is in a far more gradual slowdown than many economists had predicted.
The Chinese government has increased its anti-slowdown efforts, reducing taxes for small businesses and looking into the cancellation of certain customs charges aimed at importers. Beijing is also hopeful that improved consumption in the United States and Europe will result in a greater market for Chinese-built products.
Based on recent Eurozone trade figures, the Chinese government’s optimism could have some strong evidence in its support. Germany, China’s largest European trade partner, exported 8.6 percent more products to the East Asian manufacturing giant in June 2013 than it did in June 2012.
Despite the doom and gloom predictions from many economists, China’s growth is still strong. The manufacturing giant recorded 7.5 percent economic growth in the second quarter, which despite being below the country’s official average, is a figure that beats all of China’s major manufacturing rivals.Read more
One of Europe’s top tourism destinations is struggling to attract bar and restaurant staff, despite an 18 percent unemployment rate. The Algarve, Portugal’s immensely popular southern region, is facing a somewhat paradoxical crisis regarding extreme unemployment figures and a distinct lack of skilled hospitality staff.
Portugal has been struggling to deal with its growing unemployment rate for the last four years, with analysts often pinning the country’s economic problems on a major shortage of jobs. Despite this, many of Portugal’s businesses – particularly those in the tourism industry – are facing a shortage of job applications.
The Algarve region, Portugal’s top tourist destination, has the country’s highest level of unemployment. The region’s hospitality sector is the largest employer, employing one in six locals. Many of the region’s employers, however, are struggling to find any staff as unemployment benefits and social programs prove more enticing.
Despite extensive austerity measures, Portugal’s social welfare system is seen as a more desirable option than hospitality work. Bars and nightclubs often demand an extreme commitment in terms of hours worked, with many would-be employees in the Algarve shunning the long hours in favour of a more relaxed lifestyle.
Despite the employers’ insistence that their staffing problems can be blamed on the lucrative benefits available to the unemployed, many of Portugal’s experts blame the industry’s seasonal nature for its staffing shortage. Employee director Rui Carvalho claims that many workers ‘don’t want to work for just six months’ every year.
Many hospitality workers travel between Portugal and other regions to capitalise on the country’s seasonal industry. The UK is a popular working destination for staff in the region, with many working locally during Portugal’s peak tourist season before traveling to the UK to capitalise on increased tourist numbers during the summer.Read more
Although the Queen’s Diamond Jubilee brought a small burst of activity in the retail sector, house prices continue to fall. This appears to be indicative of the fact that the UK is still deeply mired in the double dip recession which many forecast to ongoing for at least this year.
According to RICS, the Royal Institute of Chartered Surveyors, fewer homes are being put on the market and, in fact, the housing market remains fragile. Since there is still a great deal of consternation over the debt crisis in the EU, the market will probably continue to be sluggish. As well, since the stamp duty holiday ended a few months back fewer people have been looking for homes.
The chief economist for RICS has been quoted as saying that the market didn’t turn around in the previous month and activity has remained slow. Approximately 66% of the surveyors stated that prices are not picking up and about one-fifth of surveyors reported that prices are actually dropping instead of rising.
Surveyors are also not optimistic for the coming year. During the month of May, 8pc of surveyors questioned felt that there would be a drop in prices over the next year but when questioned in June, 19pc responded that prices will continue to fall.
At the moment it is hoped that something will be done for first-time buyers to make purchasing a home easier to accomplish. Until the economy picks up again, it will probably take some form of incentive to boost sales of homes.
The news isn’t totally bad however as retail sales have picked up a bit due to the Jubilee and with the upcoming Olympic Games. The next few months should also see a wider profit margin as well. Even so, this rise in retail will most likely not be enough to lift the UK out of recession.Read more
In the words of the BoE governor, Sir Mervyn King, the EU is quite literally “tearing itself apart” and this is having a huge impact on the economy of the UK. Inflation will stay higher longer and it may not be until 2014 that the UK sees itself back to a pre-crisis economy. As a result, the Bank significantly lowered its growth forecast from the previously stated 1.2% to just 0.8% for the year.
Conversely, inflation is expected to stay above the target of 2% at least for the next year which is not good news for households that are already struggling financially. According to Sir Mervyn, the economy will remain slow as well as uncertain and he refers to the current crisis in the eurozone as being a ‘storm’ heading in the direction of the UK.
He goes on to say that the UK has survived the biggest downturn since the 1930’s and that the loss of the eurozone, the UK’s leading trading partner, there will be a huge impact on the economy at home. There is no way to ‘quantify’ what the dissolution of the EU would do to the economy of Great Britain, but it will certainly have a dire consequences.
Although there is no way of telling when this dark ‘cloud’ will move past, again his metaphor, but he has every reason to expect that growth in the UK will indeed recover and that inflation will drop once again. Sir Mervyn then says that Great Britain will be ‘buffeted by winds’ and there is no way to know from which direction they will come, but come they certainly will.
In the end, recovery is made harder because of the uncertainty in the EU, but once the story unfolds, it will be easier to get a grasp on what needs to be done.Read more