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The Economics Story: Mixed start to 2013

Fortnightly insight into the current state of the economy and how it relates to Dorset by Nigel F Jump, Chief Economist of Strategic Economics Ltd (a Dorset Company) and Visiting Professor in Economics at the Universities of Bath and Plymouth.

See: www.strategiceconomics.co.uk

Calendar 2013 has started with some mixed economic signals. 

On the one hand, the financial markets have been positive, with share prices reaching levels not seen since 2008 and some positive forecasts for the rest of the year. This would suggest investors are expecting good corporate performances in the year to 18 months ahead and that may imply a clear, if not robust, recovery. 

Also, we have had some anecdotal evidence from exporters orientated towards growing luxury markets in China, Russia and America, such as Jaguar Land Rover who recently announced the creation of 800 new jobs in its UK operations, that things are going well. Once again, even in a prolonged downturn, businesses with good products and services and good markets can prosper.

On the other hand, Honda announced the loss of, coincidentally, 800 jobs in Swindon, blaming the weakness of ‘middle’ markets in Europe, especially in those Mediterranean countries undergoing severe recessions. Retrenchment is still an important recipe for firms buffeted by the Great Austerity.

Also, we’ve had a wave of bad news from the High Street, with the closure of Comet, Jessops, HMV and Blockbuster, the loss of more than 10,000 staff positions and numerous empty outlets. It is notable that all these chains sell discretionary items: products or services that households can trade down to cheaper sources for (including on-line) and/or can defer purchases, almost indefinitely, when current budgets are under pressure. As elsewhere, these chains are in several High Streets in Dorset and their closure will affect footfall and other spending in many of our communities, unless the outlets are quickly re-opened. 

The official UK figures for total retail sales volumes show that they peaked in September and deteriorated thereafter. In December, they were just 0.3% above year ago levels. The latest quarterly figures show a rise in savings to 7.7% of family incomes, partly reflecting debt repayments. The ratio of household liabilities/incomes is falling (though still too high at 1.5). It is good for the longer run that household finances are gradually rebalancing but it will continue to dampen demand in the short run.

Another signal came from the purchasing managers series for SW England in December.  Across the region, output was up and employment was down a bit last month.  But, importantly, both trends have stayed flat over the last 6 months.  Moreover, industrial production fell, in year-on-year terms, in each of the last 20 months to November 2012.  In aggregate, production is still below pre-recession levels and the drag from the huge UK trade deficit in goods persists.  In summary, there is no sign of a sustained recovery in the real macro economy.  Against this background, salvation for Dorset companies and workers is down to taking the right actions at a micro level.  In good times and bad, the recipe does not change: good products and services being sold to buoyant markets; tight cost control and sharp customer relations; access to finance and entrepreneurial aspiration; and investment in innovation and skills.

Professor Nigel Jump, 18th January 2013

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