Sunday thoughts: jokes and data

Sunday, January 11th, 2009 - Article, credit crunch, Employment, sunday thoughts

A friend sent me a joke this week via Facebook:

Ian, just got this text through and immediately thought that it’s up your street to work into something!!

Crisp white starched writing paper, handwritten using the finest quill and freshest ink, lovingly folded and wrapped in a gold leaf bonded envelope.  This is no ordinary P45, this is an M&S P45

I then saw a piece from Louise at the ever good UKRecruiter, where in her first newsletter of 2009 she referred back to an inside contact out, who pointed out that M&S had reduced their redundancy terms in the summer, and now had made 1200 people redundant: hence saving themselves a large lump of cash.

The question this week is: did companies see this coming earlier, and hence when will we turn?

In the economic context, as I have said before, employment is a lagging indicator. The reason why is simple – the cost of recruiting and training, and the time it takes to undertake such an exercise. In most industry estimates, it takes around three months to bring a new employee on board, 18months before they are fully productive; and putting any wage issues aside, around £15,000+ per employee minimum in costs. So 1200 people from M&S is effectively like writing off an investment of £18million – ouch! I dare say that is at least doubled in the case of Nissan, as there people probably are fewer of them and they take longer to train – around 2years for full effectiveness.

So is this data saying then, that the recession will last at least 18months to 2years from now? No – have you seen the stock market, already up by 20% since its lows in November. So what is it saying then?

The thing that has struck me in my own business, as well as talking around other business people, is the speed by which the down turn occurred – like a tap turning off is a comment I have heard more than once. I think that wholly relates economically to the speed at which the banks failed – everyone accepts they failed in September, right? No cash from the banks means no cash for credit, and we as a global economy had grown not just rich but totally fat, on easy credit.

According to the Office of National Statistics, the UK GDP has grown on average by 2.5% per annum since 2000 – the last year the banks were in balance, lending out a pound for every pound they took in from savings; by 2007, that had reached 7pounds out for every pound in. So either, we have to wind back eight years of growth – or find a way for the banks to start lending.

As an aside, that same ONS data shows a pronounced drop in GDP from summer 2007, about the time the American markets showed signs of pain. I hence think companies did see this coming earlier, and may be took some precautions – a pensions and redundancy package renegotiation should take around 12months.

However, returning to the present I conclude there is presently some mixed data out there, with leading and lagging data mixing with individual business agenda. And I conclude I am right on this with support from Lord Mandelson, Secretary of state for Business. When asked to provide financial assistance to the motor industry, a wholly Mandelson-esque scheme of supporting the car-owned loan firms emerged this week. Why? I think because – it bypasses the banks, who clearly from this decision are getting aggressive with Downing Street – this slaps them down a bit; it actually supports the car firms, and puts the money closer to the decision making point; and thirdly it brilliant politically, as it allows Joe Public and most importantly his employer to buy new vehicles.

The M&S and Nissan decisions I see as partly to wholly political:

  • M&S Food stores are nice places, but need the right type of footfall to make money – it doesn’t have a value range like a Tesco local. As I saw one commentator this week in the Daily Mail say, why did they ever put one in Honiton? When the financial markets are moving, it expects you to do the right thing – hence winding back a poor decision is now rewarded
  • The Nissan decision is possibly the first sign in the closure of Europe’s most efficient car plant. Nissan is 44.4% owned by Renault, and the French car firms are suffering more through lack of sales than Nissan. But both need cash, and the opportunity to swap production long term to an empty car plant in northern France must seem juicy to the French, compared to subsidising more efficient British workers

So when you read data this week, think: is this wholly justified, and how long when the up turn comes will this decision take to unwind? M&S could fill those stores and have them operating within month, Nissan will take 18months+ – but I doubt the jobs will be coming back to the UK.

When will the turn occur, or at least a bottom? Well, in January all we will get is December’s economic data, and on the housing front that will always be bleak – who wants under/over cooked turkey from your lap in your new house? By February Obama will be in the White House, but again cold weather keeps house buyers in – another awful month. By March, if Mr Darling has not sorted out the banks, then I hope the pound stays low – it will be the only way to kick start the economy.

When Paul McCauley of bond traders PIMCO discussed the outlook for 2009 this week on Bloomberg, he said that their public and private briefing was to co-invest alongside the Sovereign dollar – from this briefing and the data within you can see why. Bonds are about safe investing, and I think he’s right – you can’t beat the tax payer, so you might as well join him.

All this data suggests that the recovery will take place in 2010, but that the recession will continue further into 2009 than any of the men spending the tax payers money want it to – probably now post Q3 2009. Some of the data – including M&S and Nissan is false, but the reality of surviving the crunch and facing a recruitment/training problem versus liquidation like Woolworths: it’s a no choice.

The decision at M&S was right – the business in certain locations was unsustainable over growth, such is the way of capitalism; the decision at Nissan is more long term, and has yet to play through – I think it spells a long term demise of the plant

But in both cases remaining workers retain jobs, and I think as a goal that is all most should aim for in 2009 until the trending data is clearer. At present, jokes and data have much in common with business planning – it’s the way you tell them!

Good Luck!

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