Want a job? Avoid anything that involves a 3year+ loan

Sunday, January 18th, 2009 - credit crunch, Employment, sunday thoughts


The second week of January was unusual in the present economic climate: according to data, it was the first week where net job creation was greater than job losses.

So, am I about to make a recurring political faux pas, and suggest that the green shoots of recovery are now being seen? Ah, no. In absolutely no way am I going to even skirt close to that.

What I am going to suggest is that those companies who have money in their pockets, are positioning themselves to win larger market shares – in their own and related/new markets. I guess that prompts a second question – who has money at present?

What happened from post-summer 2008, it is now clear from data that consumer spend shifted to the same products which were cheaper, rather than declined. Rather than moving, people revamped. Rather than buying a big car, they bought a second hand smaller one. Rather than going to the cinema, they upgraded their Sky packages (not many bought new installations), and ordered a takeaway. And rather than going to Marks & Spencer Food, they went to Asda – while Asda shoppers went to Aldi, a big gainer from this downturn, who can afford to offer new graduates packages of £40,000pa plus a new Audi. Both Waitrose and Tesco seem to have lost out – I guess the priced pitch of Asda versus the Tesco pitch of quality won through. Those who couldn’t face going to Poundland found a revamped and better priced Sainsburys – Justin King did well from a timing perspective.

As the credit crunch hit the UK from late October, the number of companies announcing redundancies – or the possibilities of – increased. This I am sure in future data will be seen like turning the tap off on spending on big ticket and non-essential items; shown by sales of children’s toys holding up, while sales of adult gifts were down. The wave of redundancies continued through the elongated Christmas/New Year period, and I am sure will run through to post Easter, and probably up until the summer.

So what faces us in January? A whole new bevy of data, suggesting this downturn is elongating. Most of the motorcar manufacturers are announcing elongated shut down periods, with Honda closing their Swindon factory by two more months to a total of four months. Honda have played a wise game here from an HR view point, by retaining their workers and “employing them” by engaging them in community projects on their on-days – this keeps moral up and skilled workers engaged, meaning when the upturn occurs they can go to full production quickly. JCB however, who’s end client is the construction industry, having announced two sets of redundancies in late 2008, and one union back agreement to reduce wages and hours to retain workers; have now had to announce a third set of 684 redundancies including some of those who voted for the union backed deal. I think the upturn for JCB will be long, both from a market need as well as from community support to join a company that had to break its own promises.

This weekend we are also met with data suggesting that the Chancellor is going to address the lack of bank lending, and also having to inject further cash into the banks – a £100Bn package. The problem solved was that injecting cash to the banks would allow then to lend. However, the inbuilt problem in the plan as we have discussed before was the 12% rate charged in the preferred stock and loans. The second inbuilt problem was that Downing Street released to the press that the Prime Minster and Chancellor had asked the banks for the “final” figure – the number which they would never need to go above, making this a one-time deal. With banks not lending to enable them to pay back of those 12% loans, and hence asset prices falling further leading to less cash in the economy, and hence more redundancies leading to lower asset process: it could be argued that the economic down turn circle has been quickened up in the short term by the plan, over slowed. I don’t think it can be argued it wasn’t the right decision – just look at the aftermath of the liquidation of Lehmann Brothers – but I do think the economic “gap” with too loose a brief/control of the lending control lever was a mistake. I think the two month effect of that interest gap and result reduced lending could lead to at least a quarters worth of extra downturn, may be two.

There is evidence of that extended downturn period in the news this weekend that the construction industry will need to lay-off an additional 90,000 workers in the next few months. Much like employment data lagging the economy, some of the large construction projects will only come to an end in the following months. With a huge 75%+ downturn in the housing, and 50%+ downturn in the commercial property – and even the reliant Government sector controlled by Local Authorities now announcing spending cuts and associated redundancies – we can expect further rising unemployment levels.

Stock market analysts have various models for predicting data trends, and hence future turns in the markets. Effectively this is statistical analysis of pressure balance – either upwards or downwards. What the safest models teach is that you only invest 3% above or below three consecutive peaks or troughs. So we shouldn’t be surprised to see the odd spike in positive employment data. However, when looking for work, that is not good enough. Whole of market data just shows whole of market issues – the question has to be, where are the positive spikes being created, and where are the downturns?

With shifting spending, people are taking their weekly or monthly wage, and buying the essentials at a better value point. They can’t at present afford big ticket items, as even if they could most are either faced with or in fear of redundancy. Hence when spending is not shifting, it is making its way to savings. Employers faced with shifted spend are taking advantage of that shift by extending their geographical footprint or market offering – the extension of Aldi, Iceland buying Woolworths stores, etc.

Whole of market employment data shows that people are not spending on things that require loans – because they can’t get them or won’t take them. Until the loan issues is solved by Downing Street – and that will then take time to work through to the High Street banks – if you are looking for employment and are considering to switch sectors, I strongly suggest you avoid sectors where the end product is loan reliant: construction, cars, etc. I can’t see the loan market being solved from current expert opinion until end Q2 2009, so hence all those sectors will have downward pressure until post that point.

The second part of the problem is to over come the fear of unemployment – with that, people will not spend and asset prices will continue to fall. Our own government this week has made two errors in its own PR with suggesting an upturn: Baroness Vadera with Green shoots, and now Margaret Beckett suggesting that first time house buyers should get out there now and buy. Mrs Beckett is a well known caravaner – a product which requires a loan to buy, so avoid employment there. As someone who personally watches the holiday home market in Florida, I’d just like to say: the market will keep going down for at least another three months plus, and probably as long as six months – prices are still falling horribly quickly

Who can bring faith back to the world economy? The world needs America to stop going downwards, and start buying. And Americans it would appear to have faith in one man – Barack Obama, who this weekend has a 79% CBS poll rating in those Americans who have faith in him. However, in most interviews I have heard with what could always be called American-scepetic economists in the rest of the world, the Obama word is spreading like sunshine on a cloudy day – and yes, I ‘d just use a Smokey Robinson lyric purposefully.

There is a lot hanging on Barack Obama, even to the point it could be a fair bet that he could walk on water. He can’t, he’s a human being. But one thing that allows human people to achieve is faith in themselves and those around them. And much as though I fear the faith that poll data is showing in Barack Obama, and setting too high a set of expectations – it may just be his point in time to be the spark that struck faith back into the worlds people, and this battered world economy. The world is not going to be the same after this recession, so didn’t expect it to return to be the same – but that faith in Obama that translate into a spark, and he could presently have a chance of delivering by being able to take that poll data and turn it into any deliverable he desires: who is going to resist Barack?

Faith in Obama, and a delivered financing package from Alistair Darling could be the start of the economic turn. But there is no sign of that yet, and hence I don’t see green shoots – and I don’t think anyone else can, whatever their vision. That’s just blind faith, or poor spun PR – and for your own employment, don’t believe in either of those options.

Good Luck!

 

PS: as a private pilot, can I just say having watched all the new videos which are appearing this weekend of US Airways flight 1549 coming down in the Hudson River, that captain Chesley B ‘Sully’ Sullenberger III is truly a hero – keeping that plane totally flat into landing on an undulating surface was a skill of training, hours, concentration – and calm. I saw a news report suggesting that he was later seen on the dock in Manhattan, drinking a coffee and looking as calm and much like David Niven relaxing after a take during a film shoot. Now that’s a sign of a skilled expert in his trade, knowing he’s just done his job

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One Response to “Want a job? Avoid anything that involves a 3year+ loan”

  1. Susan Kishner Says:

    Just wanted to say HI. I found your blog a few days ago on Technorati and have been reading it over the past few days.

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