So it’s all over? Last week we learnt that house prices were up again, according to the Nationwide. This morning the bullishness from Nationwide went a step further, and its consumer confidence index hit a five-year high, at least by one interpretation. Read that one again, the consumer confidence hit a five-year high in June.
According to the British Chambers of Commerce, the worst of the recession is over.
The sun is up. It was all just a bad dream, we can get back to normal.
It is just that you don’t really believe that do you?
It is not down to confidence, what we believe is not the key. There are deeper forces at work here, harsh, real forces: and it is time we grappled with reality.
Last week the Office for National Statistics made the headlines when it revised its data for Q1; apparently the economic recession during this quarter was even worse than we originally thought. Well that’s disappointing and all, but doesn’t really tell us anything about the here and now.
Of far more interest than what happened back in those ancient of times when this year was still young, and snow was falling from the sky, is the news about what was going on in June.
And in June consumers it seems were cock-a-hoop. The Nationwide consumer confidence index hit 58 in June, the highest score posted since October last year. More to the point, the Nationwide found that consumers are now expecting the economy to be stronger in six months than it is now. The Nationwide index was kicked off in 2004, and in all the time that has elapsed since, this has never happened before. So, actually, you could say consumers are more confident about the future than ever recorded before. Or to put it another way, if you were to say history began the day the Nationwide started collecting consumer confidence data, then it’s the highest level of consumer confidence about the future, ever.
But then you need to ask yourself where this confidence comes from. The media have gone from telling us the world was about to end, and that civilization was on the verge of collapse, to talk that the recession was over and the housing market was returning to life in six months. So that’s from Armageddon is nigh to, actually, things are not that different from normal, in half a year. We may be cynical about what we read, but none of us ignore the headlines altogether. No wonder consumer confidence has done this about turn.
The media tell us all is woe, people believe it, and then the media say see, told you all is woe, it must be, people say so. Then we are told green shoots are here, readers believe it and this is reflected in the consumer confidence index, and the media say see, told you so.
And yet we all know job losses are going to continue to mount. Now some companies are asking staff to take a long extended holiday for a cut down wage.
If you are one of the lucky ones who has enjoyed a sharp reduction in your mortgage costs, thanks to lower interest rates, and at the same time have a secure job, then actually you probably do feel better off.
But for many mortgage holders who came off fixed rate deals and on to a variable rate mortgage, the improvement in their interest payments has been marginal.
If you live off your savings, then lower interest rates have had the effect of slashing your income.
If you are a baby boomer and plan to retire in a few years’ time, the fall in the value of the pound and the dreadful stock market performance of the last ten years mean you probably need a re-think. You either need to work for more years than you planned – easier said than done in an environment when unemployment is rising, or you need to save more, a lot more. And if we all start saving more, the result will be less aggregate demand, meaning more job losses.
One thing is for sure. Taxes are set to rise. The government has got three options with its growing mountain of debt. Option 1: inflate its way out of trouble, but that’s easier said than done because if markets get a whiff of rising inflation, money will pour out of Britain, causing all kinds of shocks on the currency markets and making the interest rate go up and up. Option 2: cut government spending – well, yes, that is most people’s favourite, but don’t forget, any cut in government spending will mean job losses, at a time when unemployment is rising anyway. Besides, for the cuts to be meaningful, they will have to be huge, and that won’t be easy. Option 3: increase taxes – and you just know how that will go down.
It seems both higher taxes and cuts in government spending are inevitable. And all that at a time when the baby boomers, who make up a huge portion of the labour market, need to save more.
It’s not pretty is it?
Then there’s manufacturing. You may have heard the one about green shoots in the manufacturing industry. The Purchasing Managers Index has been creeping up of late, so that has to be good. A month ago we were told manufacturing output actually rose. It was a modest rise, but a rise nonetheless.
And yet the latest data on industrial output from the Office for National Statistics out this week was disappointing. For one thing, data for May was revised downwards and it seems output from our manufacturers didn’t rise after all, rather it was flat. As for June, there was a nasty 0.5 per cent contraction.
On a year on year basis, manufacturing has now contracted by 12.7 per cent. According to Capital Economics the total level of manufacturing output has fallen back to its 1992 level.
So consumer confidence is up, house prices are rising again. The economy is on the mend. What was that? Would you believe it. Hold on there while I pinch myself and check this one out. Yes, it was real all right. Here is a message from 50 miles north of London, there’s a flock of flying pigs heading south.
© Investment & Business News 2013