Don't panic, it's not a double dip!

Yesterday's statistics from the Office of National Statistics which illustrate a 23,500 rise in jobseekers claimants in January will inevitably spark fears of a double dip recession.

This would be a misreading of what is going on. Our labour market is now much closer to the American rather than the European model, in other words highly flexible, which is bad in the bad times as company's can lay people off quickly. However, the reverse is also true, in that when things start picking up company's can quickly pick up the phone and get people in rapidly.

How flexible are we compared to others? Well, if you want to get rid of employees in Germany it takes on average nine months while you consult with the Works Councils. In France, it's even worse. This was one of the major contributors (along with the astonishingly laid back attitude of the European Central Bank towards interest rate intervention) to sluggish European economic growth in the Noughties when the UK economy was roaring ahead.

So why the increase when we are supposed to be coming out of this downturn? Two factors immediately spring to mind. Firstly, many seasonal workers will have been taken on for Christmas and then let go again in the New Year. Secondly, I suspect the weather has had a one-off impact which has to be factored in.

Where do we go from here? Regular readers of my postings (he knows who he is!) will know that I have been cautiously optimistic about our economy even at the start of 2009 when it looked as if the entire country was about to go belly up. My belief is that from March/April unemployment will start a downward trajectory with economic growth picking up speed from the middle of the year with good strong growth from 2011 onwards.

Clearing out the dead wood

The demise of LDV yesterday is a bitter blow to both the van manufacturer, its workforce and the company’s supply chain, but it was probably inevitable. I had hoped that Weststar had a plan for the company’s future, niche green or biofuel vans or something, but in all honesty it was always going to be a long shot.

However, as we begin what is likely to be the long and tortuous process of lifting ourselves out of recession, one or two things are becoming increasingly clear, namely that this recession will probably be more cleansing than catastrophic. The fear, as little as 3-4 months ago, was that good businesses of all sizes would be forced to the wall because of the dire economic news. That concern is now beginning to lift as the credit markets thaw and lending begins again as banks get used to their new status of being publicly owned.

With hindsight, we may therefore look back on this recession as being a cathartic clearing out of dead wood companies that have teetered on the brink, even in the good times. LDV will now unfortunately go into history alongside another acronym, MFI, and other companies which have failed to keep pace with the times, such as Woolworths and Whittards of Chelsea.

The path to insolvency for each of these companies was eerily familiar. A gradual loss of market share and consumer confidence, management buy-outs promising to resurrect the brands, fierce competition from massive, often global companies, able to exploit huge economies of scale, failure to adapt to changing market dynamics and an inability to identify and seize opportunities.

A former colleague of mine who advised Whittards told me once that the company really missed the boat with the explosion of the coffee shop culture of the late 90s and the rise of Starbucks. It limped on for a while, but the end was inevitable. The same goes for LDV.

It's not often I'm right but . . .

I had an interesting conversation with a contact of mine last week. His research department (he’s in property) has produced a research report which showed that the property sector and economy as a whole was, excuse my language, on its *rse!

The big question was: does he release the report to the media or suppress it in true Civil Service style? I advised suppression on the basis that three-month old statistics detailing the UK’s economic misery was hardly big news and it wouldn’t do them any good to be seen to drive the sector down any further. Furthermore, I expressed the opinion that the place for the economic story to go next was recovery, glints of light and greenshoots.

Now it’s not often I’m right, but FT readers will note yesterday’s front page proclaiming that the recession is over (well not quite, ‘bottomed out is the phrase’ used) and I intend to enjoy being correct for once – particularly in light of my LDV predictions!

I have been, and my colleagues will verify this, bullish on this one for a while and my confidence only increased further last week when two clients separately told me that estate agents were beginning to complain about a lack of stock for potential buyers (they’re never happy are they?).

Admittedly, I did not expect to see greenshoots this early. My feeling all along has been that the unprecedented fiscal stimulus that has hit the UK, including VAT at 15%, interest rates at historic lows, quantitative easing and a collapsed oil price (although I notice unleaded is creeping back to nearly a £1 a litre despite oil only being at $60 a barrel) would begin to drag us out of this at the back end of the year. Also, I retained a perhaps naïve faith that consumption would return to normal levels as consumers, who have put off buying that new microwave or a car, decide that enough is enough and go for a good old splurge.

I am acutely aware that further bad news could snuff out these greenshoots of consumer confidence, but barring a real global pandemic (not a fake one), further massive writedowns by our banks when they report again in the autumn or the four horsemen of the apocalypse riding over the horizon, I think there is genuine reason for cautious optimism.

Print that Mr Thorne (and no you can’t have a copy of the report).