Markets and unemployment

Big falls in share markets yesterday were put down to worse than expected unemployment figures in the USA.

Readers of this site will not be surprised that the real economy is still struggling. In this recession in the US and the UK industrial companies have been much quicker to cut employment costs. Some have done this by agreeing unpaid leave, temporary factory closures and short time weeks. Others are simply firing many people, deciding there is too much capacity and wanting to get rid of the costs before they bring the whole enterprise down. Expect more job losses on the both sides of the Atlantic, as the green shoots do not extend to a significant upturn in industrial orders yet.

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8 Comments

  1. Kevin Lohse
    Posted July 3, 2009 at 6:24 am | Permalink

    John. Do you think we will see the Slump, for that is now what we are living through, reach those boardrooms with comensurate scaling back of benefits and voluntary reductions in pay?

  2. Brian Tomkinson
    Posted July 3, 2009 at 8:07 am | Permalink

    Just what and where are these so-called green shoots?

  3. Denis Cooper
    Posted July 3, 2009 at 9:25 am | Permalink

    This week on the money-go-round –

    The Bank of England created £6.50 billion out of thin air and used it to buy up previously issued gilts from the market, on Monday and Wednesday:

    http://www.bankofengland.co.uk/markets/apf/apfgiltresults090629.pdf

    and

    http://www.bankofengland.co.uk/markets/apf/apfgiltresults090701.pdf

    taking the total new money that the Bank has now created and used to buy up gilts to £103 billion, equivalent to about 7% of GDP.

    Meanwhile on Tuesday and Thursday the Treasury borrowed a total of £7.75 billion by selling new gilts into the market:

    http://www.dmo.gov.uk/documentview.aspx?docName=/gilts/press/010709conventional.pdf

    and

    http://www.dmo.gov.uk/docs//gilts/press/020709conventional.pdf

    With the Bank continuing to mop up excess gilts from the market, the Treasury is having no difficulty selling broadly equivalent gilts into the market in order to borrow enough money to cover the government’s budget deficit.

    In accordance with the Weimar doctrine, 97% of the Bank’s “quantitative easing” is being directed towards easing the government’s financial difficulties; however there is no truth in recent reports that local councils will be instructed to provide residents with free wheelbarrows.

  4. Denis Cooper
    Posted July 3, 2009 at 10:04 am | Permalink

    Just updated on:

    http://www.bankofengland.co.uk/markets/apf/results.htm

    “The table below show the outstanding stock holdings (on a settled basis, net of any redemptions) for each facility. These data are as at close Thursday 2 July 2009.

    Commercial Paper £1,914mn
    Corporate Bonds £803mn
    Gilts £102,868mn ”

    102,868 divided by 105,585 = 97.4% .

  5. Demetrius
    Posted July 3, 2009 at 10:54 am | Permalink

    For those of us tracking what is happening around the States of the USA, remember this is a Federal state, it is looking very ugly. There are to be be large numbers of job losses at State and local levels, that is the public sector, as a “lag” factor in the recession. This will not help the demand for private sector goods and services. What is happening in the UK is less clear given the fudging of figures and uncertainty. But as many staff these days in the public sector are either agency or on short term contracts, they will be vulnerable, and a recruitment freeze can be assumed. This could have a number of unintended consequences that politically may be very difficult. It promises to be an almighty mess, much in line with the one million plus NEET’s apparently out there are in terms of the young.

  6. jean baker
    Posted July 3, 2009 at 4:06 pm | Permalink

    Has the US government significantly increased it’s staffing levels with additional ‘quangos’ undebated legislation as Labour is doing as employment in the private sector contines to fall ?

  7. alan jutson
    Posted July 3, 2009 at 8:53 pm | Permalink

    Sadly I feel we are nowhere near the bottom yet.

    The full extent of our borrowing has yet to be publicised.

    No corrective measures to limit further borrowing have yet been taken.

    No corrective measures to repay some of the debt has yet been taken.

    We have yet to recognise the Public Pension deficit, and do something about it.

    Interest rates will rise at some stage in the not too distant future, which will then deflate domestic spending as mortgage costs rise.

    Increases in Raw material cost from abroad have not yet filtered through do to low demand at the moment, but will start to do so once restocking takes place.

    Unemployment will continue to rise, and tax take reduce.

    Our balance of payments deficit will get worse.

    We have some family members and friends who have been made redundant.

    In the meantime the Government Lie about the true situation.

    Its all rather depressing.

  8. Matthew Reynolds
    Posted July 4, 2009 at 3:06 pm | Permalink

    Rapid cuts in corporate taxes would boost productivity by generating more investment. They would add to the PSBR to start with but owing to declining tax evasion and higher productivity the governments revenue base would be enhanced thanks to a tax cut fueled recovery.

    As Ronald Reagan proved that by cutting taxes across the board you can get the economy up & running. My prescription is to cut rates of business tax by 25% from 28% & 20% to 21% & 15% in one go right away. The longer term aim should be a single 10% rate with progress towards that being dependent on how fast public spending can be cut to balance the books. Suspending EU contributions to save £20 billion a year until the EU’s accounts have been signed off could help with that as could reforms to replace Child Benefit with targeted help for poor families (saving £7 billion p/a) and to take 20% off of the cost of tax credits & Housing Benefit (saving £6 billion). Aiming to halve the QUANGO budget in four years by scrapping or hiving off as many as possible could save £32 billion p/a.

    That would lower public spending by £65 billion – coupled with rising tax revenues on the back of lower business taxes generating an economic upswing would reduce public borrowing. Rather than lament the state of the UK I prefer to use my time proffering possible solutions.

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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