Explaining recession

Generali

ManAtHome wrote: »

Ey up, you missed the "blame everybody else" bit...

Was I hallucinating, or did I really see Ed Ballsup on the box last night claiming the UK had the best public-sector finances in Europe..? (please tell me it was the malt...)

The worst thing is that it's probably true, at least when you consider what's on the balance sheet anyway. It's the off balance sheet stuff that bothers me. Does anyone properly calculate the value of pension and PPI commitments? I've never seen a really thorough working, just some 'think tank' straight line on a piece of paper projection.

Toto

So, how far away or close to recession do you think we are?

Looking at my industry I would be saying we have been on the edge for the past couple of years.

Phirefly

fc123 wrote: »

On a positive note, recessions do throw up a lot of creativity. The last one had the rave scene (taking over a field rather than paying to go to some corporate owned club) and young people will create their own fashions, music.

You're absolutely right.

I'm ever the optimist and Mr. Phirefly and I are seeing this impending downturn as one huge opportunity. Exhilirating times ahead...

Generali

My guess is that the US is either in or about to enter a recession. I suspect that the UK will follow about 6-12 months afterwards.

Please don't make any life changing decisions based on my ramblings! If I knew that much then I'd not be sitting here faffing about on the internet!

fc123

Phirefly wrote: »

You're absolutely right.

I'm ever the optimist and Mr. Phirefly and I are seeing this impending downturn as one huge opportunity. Exhilirating times ahead...

Go for it .....in fashion the tide is slowly turning but the few big boys that currently dominate the High St are still going to be around. However not all the population are "Mall Rats" and there is definately a change in mood

We started out on Market stalls in 1986 so knew what we were doing when we opened our 1st store, however, we still didn't know enough and it was all a bit of a rolercoaster. We were exporting to Japan all through the 90's too.

Though one can start out on-line nowadays, it lacks something and is not very tactile but it can get a business going.

One of the really sad things to come about from HIP and being able to use ones property as a cashpoint, is the number of small retail startups that didn't know what they were doing and got taken to the floor by their landlords / business rates non-payment etc.
They could access the £60k required with no Q's asked.
In the olden days one had to go and see the bank mngr with a plan etc.

Some were high flyers who fancied running a little shop / cafe to get out of the rat race. They thought one just came up with a look, bought stock and sold lots of it and sat back enjoying their stress free life.
One told me that running his own tiny business was 10 times more stressful than his previous, city job and he couldn't even take a salary.

They did research "new style" (internet ) but should have done it "old style"; coming in and having a chit chat with established independents.
Most of us will tell it how it is, what rents we are paying, if a premises to let is too exp etc etc.

Then they go down after a year or so but the damge to our rents is a pain;the inflated rents they agreed to pay are then used as evidence in rent reviews.


It takes a long time for commercial landlords to reduce rents though. They don't want to set the evidence, so will keep units vacant longer than they should however a new rates rule is coming in so it will be in their interest to get a new tenant ASAP.
If this can bring retail rents down, then there will be opportunities for people to start up an Indie store...:T


Can I ask a Q?

I am trying to guesstimate my potential drop in T/O (not being Mrs Negative or anything but we have never been Ltd.)

If I could work out the rough percentage of consumer spending over the past few yrs that was on credit + MEW + just out of peoples wages...and the never never spending dries up...it could give me an idea?
Say 35% credit against 65% cash in pocket.

Obviously I am NOT an economist:o

Phirefly...you should come and visit the area for a weekend!

fc123

Toto wrote: »

So, how far away or close to recession do you think we are?

Looking at my industry I would be saying we have been on the edge for the past couple of years.

What sector are you in?

setmefree2

OMG - you make me feel so old! If you were born in 1962 - it's all you knew until the 1990's....in fact it's all we knew until there was a labour govt...."a little bit of politics"....don't worry the world's changed, we have China & India now:D There is no recession coming...

exil

ManAtHome wrote: »

Ey up, you missed the "blame everybody else" bit...

Was I hallucinating, or did I really see Ed Ballsup on the box last night claiming the UK had the best public-sector finances in Europe..? (please tell me it was the malt...)

If he did say so has was telling the truth. Other European countries have larger deficits and national debts than we do.

exil

Generali wrote: »

The worst thing is that it's probably true, at least when you consider what's on the balance sheet anyway. It's the off balance sheet stuff that bothers me. Does anyone properly calculate the value of pension and PPI commitments? I've never seen a really thorough working, just some 'think tank' straight line on a piece of paper projection.

Ah! Someone beat me to it. But again, other countries have a far worse pension black hole than we do.

However, since we are in a global economy we can't insulate ourselves from others' problems - bearing in mind the current woes are due to problems in the AMERICAN mortgage market.

Generali

fc123 wrote: »

I am trying to guesstimate my potential drop in T/O (not being Mrs Negative or anything but we have never been Ltd.)

If I could work out the rough percentage of consumer spending over the past few yrs that was on credit + MEW + just out of peoples wages...and the never never spending dries up...it could give me an idea?
Say 35% credit against 65% cash in pocket.

Obviously I am NOT an economist:o

Phirefly...you should come and visit the area for a weekend!

IIRC, the last time I worked it out (back of envelope) about 6% of GDP was MEW'd. Obviously, not all of that went on consumer goods. Some would have been used to start a business (a traditional use of MEW), add value to the house (possibly not a bad idea), buy a BTL or holiday home etc. but clearly plenty has been spent.

I'm posting this from the train so can't look it up for you but try googling for the 'wealth effect'. That's an economic theory that says that people will save less as their wealth rises and more as it falls.

So to put it another way, you'd expect to see consumption and house prices to move in the same direction at the same time. The BoE did some research in about 2004 or 2005 that claimed that the relationship had broken down but I still reckon there's a strong correlation.

At a guess I imagine that consumption would fall by perhaps 0.3% per 1% drop in house prices. That implies a worst case scenario of a 15% drop in consumption (50% drop in house prices) with perhaps a more likely outcome of 3-9% (a 10-30% fall in HPs).

There are loads of complications though. Clearly one still has to eat, keep a roof over your head, maintain addictions (like drinking, smoking, gambling etc) and pay to get to work so you'd expect spending on discretionary stuff like fancy clothes, big cars, holidays and so on to fall off a cliff. I believe that is bourne out by the data.

I think that spending on what is perceived as 'good value' holds up well. People will go for good quality at a good price rather than the very cheapest (anyone that's tried drinking Tesco Basics Cider will tell you why). Perhaps you can reposition your stock a little in that direction - more look at the craftsmanship in that, you'll pass it on to the kids than 'never mind the quality, feel the width in that'.

Apologies for the rambling post. The short version is 'look up 'the Wealth Effect' on Google.'