HAMISH MCRAE: Is this just a dip… or a plunge into economic disaster?
Here’s a puzzle. Hardly a day passes without a giant company announcing job losses. They are particularly serious in the motor industry, with Ford Europe and Jaguar Land Rover cutting thousands.
Nissan is slashing posts at its European head office in Switzerland, and as we report here, falling profits mean that jobs in Sunderland could be under threat, too. But it is not just the motor trade: even the mighty BlackRock, the largest asset manager in the world, is cutting 500 posts in the next few weeks.
Yet at the same time, there seems to be a jobs boom in most of the developed world. Here in Britain, there are 400,000 more people in work than a year ago. At around 4 per cent, US and UK unemployment is the lowest since the 1970s. And the eurozone’s, while still high at 8 per cent, is the lowest since 2008. What’s up?
Economic slowdown? But UK unemployment is the lowest since the 1970s
The explanation may be partly that losses come in lumps and are news, whereas job gains come incrementally and are not. But more troubling, these job losses may be signalling a turning point in the economic cycle.
We all know there is a cycle. We have not put an end to boom and bust, as Gordon Brown once believed possible. This global expansion has been a long one – more than a decade in most countries. So retrenchment cannot be far off. The question is whether we face a slowdown or something worse.
My bet is that this is just a slowdown – at least if you look globally, rather than at specific developed countries. So far, the pressure has been on particular sectors, such as automotive and retailing. Both are struggling with seismic structural shifts: to electric vehicles in one case, and to online sales in the other.
But look around the world, and in particular at the emerging nations, which generate more than half of global growth: people still want bigger homes and more stuff to put in them. They want better healthcare and education. And they want to travel and eat out more – and the world’s growing middle class has the resources to achieve these aims.
It is true that parts of Europe are in, or close to, recession. The Italian economy seems to have shrunk in the past six months; Germany’s conceivably has, too. But set this against projections of 6 per cent growth this year in China or 7 per cent in India – or indeed 2.3 per cent in the US. (Did you know that Jaguar Land Rover sold more cars in the US last year than ever before, 7 per cent up on its previous record?)
Yes, there is a cycle and we have passed its peak. But I feel there is more likely to be a shallow dip in the next couple of years than a plunge into disaster.
Mixed bag: Debenhams continues to struggle, but Tesco did well
Actually, you can see slivers of light even in beaten-up sectors. We have just had a week of results from UK retailers and there were some dismal tales from, for example, Sainsbury’s.
Debenhams continues to struggle, and John Lewis has warned it may not pay a staff bonus, which would be the first time in 66 years. But Tesco did well, thanks in part to promotions on beef and lamb joints, while Greggs, thanks in part to its controversial vegan sausage rolls, did even better. Wise retailers cater for all tastes.
The point is that consumption is two-thirds of the economy, and there has been no overall collapse in spending. How could there be when jobs and pay are rising strongly?
What is happening is rapid change in what we buy and how we buy it. David Forde, the UK boss of Heineken, makes the same point about evolving tastes on page 101. Retailers that get on the right side of that can prosper.
Markets can be harsh in their judgments. Poor shareholders in Flybe will have seen the value of their holdings fall by more than 90 per cent with the rescue by a consortium led by Virgin and Stobart. The price was £2.2million. An airline is worth a two-bedroom flat in Kensington.
But there was another harsh judgment last week. Shares in Japanese conglomerate Hitachi rose by 6 per cent on a report that it will pull out of the Wylfa nuclear project in North Wales. By not trying to build that plant, nearly £2billion was added to its market value. That says something dismal about the market’s assessment of the economics of nuclear power.