Tuesday 10 March 2009

UK sliding fast; good news?

The latest figures out today show yet more very grim reading for the UK economy. Manufacturing sliding a the fastest rates since 1981, UK house sales at all time lows.

The world economy is too on the skids and there seems to be no good news coming from anywhere. The phrase 'off a cliff' is over used, but it is appropriate to describe what has happened since the autumn of last year.

On the brighter side, I note the FTSE today is showing some resilience to this bad news, as if most of it is already priced in.

A look at past UK recessions as well shows up an interesting point. The UK is very prone to fast falls and then fast recoveries, more so than other economies. So as much as the news is bad today that everything is getting worse quickly, this also allows for the bottom to be reached faster and the turn around to start sooner. A slow drift down would be much worse.

With a hat--tip to the excellent market oracle site, see the graphic for how the 1990's recession looked. The 1980's was the same, as was 1974.
At the moment we have the sharp fall, painful and frightening, but maybe it is bringing forward the bounce?


Nick Drew said...

timing is everything, but ...

I was interested to hear the HSBC chairman in his recent Annual Report describe this as the 'first just-in-time recession', which is significant

manufacturers have shut their plant with incredible (unprecedented ?) alacrity in this downturn: there is no depth to the J-I-T supply chain, no-one expects to build or hold inventory

so unless infrastructure etc collpases through dis-use (which is actually quite likely in some cases), the bounce-back might indeed be quicker, too

CityUnslicker said...

ND, Agree with that. It has been amazing how fast things have been shut down. Whether they can be kept in stasis for long is interesting.

I think car manufacturing will be the best bell-weather here.

Old BE said...

Let's just hope the government hasn't fouled up the recovery through too much regulation and taxation.

CityUnslicker said...

BE - it has, too much debt means taxes will have to rise, the recovery will be stagnant at best.

What will be nice is if we don't get massive inflation to go with it, but this is unlikely in the face of quantitiative easing.

Demetrius said...

Would that you were right, but I fear not. Nick Drew is right when he refers to the just in time factor, that is new. Also new is the internet aspect. Critically, in the past we had different banking systems, mutual insurance and building societies, that were able to retain their functioning and organisational integrity. We have just had a decade when all that has gone in the rush for money, the way cleared by a government mesmerised by the City slickers and the global ideology. We now have zombie banks on a drip feed of tax revenues, and a government that has lost its way. The charts may show something, but it was reliance in the charts and the mathematical models that helped to go over the cliff.

CityUnslicker said...

Demetrius - Well I don't disagree with much of that myself. But i do think things have a way of working themselves out. We have already made some pretty deep lows as far as share are concerned.

FTSE has ended up 5% today..timing is everything!

Sackerson said...

The "green shoots of economic spring"?

Anonymous said...

Derivatives, Derivatives, Derivatives.

Anonymous said...

Mark to market, mark to fantasy.
Level three assets, ratios.
No discernible market value.
Off-balance sheet structures brought back on - upon counter party bankruptcy, marked to zero.
Commercial Real Estate.
Tenantless shopping centres, - business rates.
National capital flight, corporate and private, - rapid currency depreciation = inflation.
Consumer squeezed.

Rally today = engineered!

Anonymous said...

Graph shown did not foresee mfg contraction just announced.

Yesterday £ lost 2.5% +/- against $ in 6 hours = inflation on all imports denominated in $.

When $ eventually falls, does £ follow, or hold.
And Euro?

A witches brew.

When £ falls, gold, commodity, - metals, energy, grains, - equities will rise.

Electro-Kevin said...

I fail to see how Britain can recover until the welfare state and the public sector have been culled.

Anonymous said...

just what is there to recover?

What little real industry we have has been driven by a house price bubble and historical anachronisms. You don't seriously expect house prices to start rising again do you? Or do you think the Colonies will rally round to buy our exports?

Sorry, but this is a fundamental realignment in the balance of world trade, and unless we nurture what manufacturing we have left we will be entering a nightmare.

Good time to be a day trader though.

CityUnslicker said...

i like all the comments. Clearly being contrarian is more fun. There are many reasons for everything to go more wrong than now....but this is always true at the bottom. It is spring, I have hope now - plenty of time for it to be dashed.

Anonymous said...

My company, inter alia, supplies manufacturing process materials into the flat panel display business which is a good bellweather for consumer confidence since plasma tellys are a big ticket item. In November last year, demand fell off a cliff. In December we were >80% down year on year; in January >95%; in February we actually bounced back to the heady heights of only 90% down year on year. One major Chinese customer which was taking circa US$200K/month bought nothing for 4 months because they have inventory. Now they are ready to start building again, at 25% of their previous capacity. They are demanding 75% price cuts & an extension of payment terms to 180 days. (Naturally we invited them to go & take a running jump.)

Gentlemen, there are 2 things here about which you should not kid yourselves:
1. there is not going to be quick recovery here; this is just getting going & the job losses are going to accelerate from here, further supressing demand
2. the Chinese are quite badly f***ed. They have no internal demand & they face rising unemployment & social unrest.

The really worrying part is that a huge number of business people out there are genuinely scared. When people are scared they act irrationally - so instead of conserving cash, maintaining prices & hunkering down, they do stupid shit like slash prices & attempt to grab unprofitable share. The carnage is just getting going, believe me.

Eckersalld said...

I doubt we'll see a major bounce-back. Some sectors will ramp up again - IT for example, at least I hope so - but given much purchasing has been based on either debt or release of equity, we won't be seeing much of that for a while.

The UK's current problems is over-reliance of the economy on the financial and public sectors, and whilst the former is hanging around like something from Rentaghost and the latters going to be hammered by cost-cutting we're in for a period of high unemployment and thus low purchasing power until we attract other high-wage sectors in.

Of course that's not going to happen, as a piss-poor education system coupled with a brain drain to the US and Far East and increased taxation is hardly going to make the UK look like an attractive proposition.

Eckersalld said...

@Sebatian Weetabix

I don't think the Chinese are in that much trouble, social unrest will be dealt with much as it is now, just on a wider scale.

They're also going to hoover up any number of businesses across the globe with their tranches of cash.

Anyone wanting to condemn their tanks-rolling-over-rioters methodology will likely find factories relocating to less fussy nations, and having to deal with with lots of unemployed people none too happy at having their jobs lost due to a governments moral stance.

Jeremy Jacobs said...

But is it just a big "dead cat bounce"?

Anonymous said...


I work for a company that sells training, and we specifically target the manufacturing sector.

In the last decade I watched the electronics industry vanish before my very eyes. The castings industry wasn't far behind. Aerospace - pouff, gone. Steel likewise. And so on and so on. We are in bigger trouble than you can dream of.

As for China; the girlfriend spent years selling steel into China. Not any more. They are in big trouble as their economy is collapsing around their ears even faster than ours. They'll need their cash at home.

Fortunately, as a company we've picked up a lot of public sector work along the way - and as of now the public sector don't even know there's a problem. It's still spend spend spend as the financial year-end looms.

This is big trouble.

Anonymous said...

Obsidian, I fear you don't get it. Every factory in China over a certain size has a communist party. These have always had "elections" for positions. For the first time ever the serfs are revolting & it is no longer a rubber stamping exercise. In the past the people would accept the party as the price for progress. That deal no longer applies.

Mick, by the way, is bang on.

Eckersalld said...


I'm well aware we're in oodles of trouble, however not all sectors equally so, which is why I'm saying expecting a quick bounce back won't happen across the UK. Some areas will see one, and some business sectors will see one, but across the board? Nuh-uh, not going to happen.

As for the Chinese economy, it's growing - barely - but it's growing, so I disagree they're in more trouble than us.

They also have around a trillion dollars in ready cash, which means they're also going to be in better shape than the west when we finally do start a global recovery. We may be entering a Chinese Century, something I'm not entirely comfortable with.

As for using that cash at home, they're already using it abroad as well as on their own stimulus packages.


Oh I get the idea the Chinese workers are rebelling, but the Chinese aren't like the West - whereas millions in the West rebelling would be disasterous, for the Chinese it's an exercise in mass murder.

Unless the serfs get the military - and I doubt that'll happen - on their side, they're so much fertilizer.

Old BE said...

I think we'll be fine. We just need a few more government databases and service-rating web sites and everything will be back as it should be. If the money supply is *already* growing at 20% before the Bank starts printing money house prices will start to rise very quickly very soon as people get out of cash. Once house prices are rising again the economy can be considered "recovered" and we can be happy.

Darling is a genius.

CityUnslicker said...

Sebastian - thanks for the info re your company. Shocking figures.
My hope was that once inventories were eaten through that suppliers could pick up again albeit at a much lower level.

Very sobering stuff from yourself, Mick and Obsidian.

Anonymous said...

The stockmarket and economy are behaving in a chaotic factor to each other. This is understandable.

Looking at the economy. Much of the so called growth of the past decade has been based on a)personal and corporate leverage and b) expansion of Govt slice of GDP(mostly on non jobs). In Sept 08 personal savings ratio of -0.9%.

Looking ahead consumers will rebuild savings and then mantain savings at around 6%. In combination with increased taxes, the savings culture will depress demand for five years.

Our structural problem and the US is that average earnings have barely risen for eight years. Using credit cards and home equity release allowed a potemkin economy to be validated by our daft ex Chancellor at his annual address to the troops.

So slower growth for a decade. The challenge is to identify individual corporate winners and losers. Clearly contraction leads to bankruptcies and consolidation and then to cartels. Members of cartels will have pricing power leading to growing dividends etc.

guthrie said...

What happens to the equipment and knowledge of the companies that have shut their production down so rapidly? I guess the knowledge of the employees won't dissappear too quickly, but are they mothballing the factories or selling them for scrap?
If the latter, I suppose it would take longer to tool up for improved demand again in the future.

Anonymous said...

When it is gone, it is gone for ever. That is what is so troubling about these auto shutdowns. Toyota/Honda/BMW etc will all survive, but the little guys in the supply chain simply won't be there anymore.

Obsidian, I fear you missed my point. The Chinese won't rebel in favour of democracy & freedom - they will rally in favour of Maoism & there are enough irredentists in China's power structures to make that possible.

Anonymous said...

Surely the fast-drop fast-response scenario was only possible in pre-Broon days, ie when we didn't have gargantuan government debt to service as well as everything else.

I fear it won't be so easy this time around.

And as for our training company man, who says that "Fortunately, as a company we've picked up a lot of public sector work along the way..." how long does he think that can go on? Just wondering...

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