An economist is something to be...

The Irish Independent has an interesting article where they report that the current recession is making economics a cool subject again (wasn't it always?!) and how the numbers studying it will increase substantially. Fourth Years - I told you, you chose well when you joined Economics! :o)

There has never been a better time to be an expert in the subject once known as the "dismal science''. Economists are in constant demand in the media, and some faces -- most notably David McWilliams and George Lee -- are now as well known in Ireland as film stars and footballers. But will their popularity, and the constant discussion of the country's beleaguered economy, rub off on a new generation of students?

Colm Harmon, professor of economics at UCD, predicts a boom. "In my experience, enrolments in economics go up as the economy goes down,'' says Professor Harmon. "In the '80s, they had to use two lecture theatres for the subject in UCD, because there were so many doing it. "Our worst time for enrolments was early in this decade, at the height of the boom.'' It is too early to say whether there has been a significant growth in CAO applications for economics courses in universities, but college authorities report a surge in interest in the subject, particularly at graduate level.

Dr Alan Ahearne (pictured above), lecturer in economics at NUI Galway, has emerged as one of the most respected commentators during the current recession. He has noticed a big increase in the number of applicants to NUI Galway's masters degree in international finance. "The course covers a lot of the issues around international economics and banking. These have been constantly in the news over the past few months, and that is having an effect. "We are getting a lot of interest from students with backgrounds in business studies, law and engineering.'' Dr Ahearne almost stumbled upon economics as a subject when he was studying for his Leaving Cert at St Clement's College in Limerick. "When I was doing my Leaving, it was a choice of physics and economics. Economics was the least worst option. "Then, when I actually started the Leaving Cert course, I became fascinated by the subject and I carried that into college. "At school, we learned early on about micro-economics, such things as supply and demand. You could be looking at apples or bread. I loved the rigour of the subject.'' Ahearne studied business studies at the University of Limerick, and only specialised in economics as a post-graduate. His career thus far shows where studying economics can lead. As a PhD student at the US-based Carnegie Mellon University, one of his mentors was Finn Kydland, winner of the Nobel Prize for Economics in 2004. After stints teaching at a number of universities and working for accountants Coopers and Lybrand, and Bank of Ireland Treasury, he worked for the US Central bank -- the Federal Reserve. Among his tasks was the preparation of research notes for Alan Greenspan, one of the most influential global financial figures of the past 20 years.

Jim Power, economist at Friends First and lecturer at DCU and the Smurfit Business School, came to the subject by a similar haphazard route at the Leaving Cert. "After my Inter (now Junior) Cert, I was studying three science subjects but after a month I decided to drop one of them. I chose economics over biology and I grew to love the subject.'' The graduate of economics and politics at UCD believes the subject will grow in popularity in the near future. "We have a problem of economic illiteracy at the moment. You only have to look at the Government to see it. So, the skills of economists are likely to be in greater demand in the near future. "People are fascinated by the death of the Celtic Tiger, and how it happened. There was a similar surge in interest in economics during the currency crisis of the early '90s. That was a turning point for economics in this country. "Students are realising how useful economics is as a training. With few jobs out there at the moment it is a good general discipline.'' Most of those who study economics do not actually become economists. "It can be used as a stepping stone into many different careers, including politics, journalism and accountancy," says Mr Power.

Many economics graduates work in financial services. "It is a very broad subject that applies to different areas,'' says Professor Colm Harmon of UCD. "It is relevant to health, education and transport. When you think of a single mother deciding to join the workforce, that is an economic issue.'' While a new generation of economists is likely to emerge from the current global recession, Thomas Conefrey of the Economic and Social Research Institute, said that his interest was sparked, in part, by the Celtic Tiger boom. The Trinity College graduate says: "Just as there is immense interest now in analysing our difficulties and how we can overcome them, similarly, at that time, there was great interest in finding out what had caused this economic boom and how long it was going to last.''

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Toys.com R Us

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Live register crashes through the 10% mark

The latest figures from the Central Statistics Office show that 354,437 people were on the Live Register last month. This represented an increase of 26,576 from the January figure, which was a record. The Live Register has now risen by 87% over the past 12 months, also a record. The CSO said the unemployment rate rose to 10.4% from 9.6% in January.

Bloxham Stockbrokers' Alan McQuaid says that as with January, the Live Register figures are 'simply horrendous'. He says they underline the fact that the Irish economy is now in severe crisis mode with the labour market heading for meltdown. 'It is essential in our view that the forthcoming mini-Budget includes some measures to stimulate demand in the economy and project jobs. Focusing on just simply stabilising the public finances and not targeting economic growth will not work, and indeed is likely to do more damage than good', the economist says. In a note today, Davy predicts that the unemployment rate will pass the 12% level by October. That would mean a near 8% increase in two years - the rate was only 4.5% in October 2007. The stockbrokers said that the last eurozone country to see an equivalent jump was Finland during the period from 1990 to 1992.

The Live Register is not designed to measure unemployment. It includes part-time workers (those who work up to three days a week), seasonal and casual workers entitled to Jobseekers Benefit or Allowance. Unemployment is measured by the Quarterly National Household Survey and the latest seasonally adjusted figure, for September to November 2008, is 170,700 persons unemployed.

The Bank of England to start 'quantitative easing'?

The Bank of England is expected to reduce interest rates to yet another record low tomorrow lunchtime; but with their rate-cutting ammunition all but exhausted, they are expected to press the button on a much more drastic policy — quantitative easing. As the recession deepens, weakening wage growth, plunging oil prices and consumer demand are threatening to drag inflation well below the Bank's 2% target.

With interest rates already at a historic low of just 1%, the monetary policy committee (MPC) believes further cuts will not be enough to kick-start the economy. Quantitative easing is popularly known as "printing money," but it doesn't actually involve turning on the presses. It actually means that the Bank will buy billions of pounds of assets, usually government bonds, from cash-strapped banks, in the hope that they will push the money back out again in loans to the public. In recent years the tool has been used by Japan to stimulate their economy and to fight inflation. Much of the global economic crisis is caused by frozen credit markets. Many companies find themselves unable to secure loans necessary for day to day operations. The credit crunch has adversely affected the interbank market - meaning banks have been unwilling to lend to each other.

Roubini

Every couple of months we publish what Dr. Doom, Nouriel Roubini is saying/predicting about the economic mess we find ourselves in. This week's TIME Magazine has an interview with him where he mentions Ireland. Here is some of it:

Where is the global economy heading from here?
My concern right now is that this U-shaped recession we are in could turn into something much uglier, meaning a Japanese-style L-shaped recession: near stagnation or stag-deflation. We're in the worst global synchronized recession in the last 60 years. Unless we take the right policy actions we'll end up in a near-depression. I did not want to use that term six months ago. At that time I said the chances of a near-depression were only 10%. But today those chances are 33% or so.

How can this be avoided?
You have to have a set of concerted, coherent policies done not just by the U.S., but Europe, Japan, China and everyone else. The credit crunch is just massive. One thing that's needed is much more aggressive monetary easing. The second dimension is that you need much more fiscal stimulus — in the countries that can afford it — that is front-loaded. The U.S. [stimulus package] is $800 billion but only $200 billion is front-loaded. Of that $200 billion [in stimulus] this year, half of it is tax cuts. That's going to be a waste of money because people are not going to spend it.

Why hasn't the banking mess been cleaned up?
You have to do triage between banks that are illiquid and undercapitalized but solvent, and those that are insolvent. The insolvent ones you have to shut down. You need more aggressive credit creation by the government or you have to force the banks to lend. We're in a war economy. You need command-economy allocation of credit to the real economy. Otherwise the incentive individually for every institution is to pull out, not extend credit. Not enough is being done.

Is there a part of the world you are especially worried about right now?
I'm worried about every part of the world. People thought the rest of the world would decouple from the U.S. That was nonsense. Emerging Europe is on the verge of a fully fledged sovereign debt, banking and currency crisis. I think China is in a near-recession right now. Many emerging markets, even those that are in better shape, are in severe trouble. I don't think there is any economy in the world right now that is safe.

Is a breakup of the European monetary union possible?
I don't see that as being likely but the probability of that eventually happening is rising. Right now we are facing a situation in which many countries now have banking systems that are too big to fail and also too big to be saved. Now if Ireland or Greece go bust, then there is already a commitment from the Germans and French to, one way or another, bail them out — because they know that otherwise the monetary union is going to collapse. But if you have to rescue on top of them Austria and Italy, Portugal and Spain and Belgium and the Netherlands, then that is not going to be possible. I am still of the view that we can avoid a collapse of the monetary union, but this is really the very first true test of its stability.

Many people are pinning their hopes on the Chinese government to stimulate demand. Is that justified?
I have to give credit to the Chinese. Their fiscal stimulus will contain the degree of economic contraction. But China is radically dependent on U.S. growth. Forcing state-owned enterprises and banks to spend more when you have overcapacity, or to lend more when there are already large [amounts of bad debt], is going to postpone a problem, maybe by a few months. But it will lead to a harder fall down the line. A hard landing is unavoidable given what has happened to the rest of the world.

60% of the world has a mobile

The speed and scale of the world's love affair with mobile phones was revealed yesterday in a UN report that showed more than half the global population now pay to use one. The survey, by the International Telecommunications Union (ITU), an agency of the UN, also found that nearly a quarter of the world's 6.7 billion people use the internet.

But it is the breathtaking growth of cellular technology that is doing more to change society, particularly in developing countries where a lack of effective communications infrastructure has traditionally been one of the biggest obstacles to economic growth. By the end of last year there were an estimated 4.1bn mobile subscriptions, up from 1bn in 2002. That represents six in 10 of the world's population, although it is hard to make a precise calculation about how many people actually use mobile phones.

Africa is the continent with the fastest growth, where penetration has soared from just one in 50 people at the turn of the century to 28%. Much of the take-up is thought to have been driven by money transfer services that allow people without bank accounts to send money speedily and safely by text messages, which the recipient - typically a family member - can cash in at the other end. Vodafone's M-Pesa money transfer service was launched in Kenya in 2007 and now has 5 million users. Developing countries now account for about two-thirds of the mobile phones in use, compared with less than half of subscriptions in 2002. A single mobile phone may have several users in poorer countries, where handsets are sometimes shared or rented out by their owners.

The report also recorded a marked increase in internet use, which more than doubled from 11% of people using the net in 2002 to 23% last year. Here the report identified a clear gap between the rich and poor world: fewer than one in 20 Africans went online in 2007, for instance, and less than 15% in Asia, whereas Europe and the Americas recorded penetration of 43% and 44% respectively. Across the world just 5% of people have broadband internet at home, although this rises to 20% in the developed world. Sweden was the world's most advanced country in the use of information and communications technology, in an index of 154 countries that took various factors into account such as access to computers and literacy levels. .

AIG bailed out... again

Stock markets around the world crashed yesterday as American International Group (AIG), the embattled US insurer, panicked investors by announcing a loss of $61.7 billion (£44 billion), the largest quarterly loss in corporate history. The FTSE 100 tumbled 204.26 points, or 5.3 per cent, to close at 3,625, its lowest level since April 2003.

The company could cost $250 billion (£178 billion) to repair, experts said yesterday as it received a further $30 billion from taxpayers via the US Government. The government has now made four separate efforts to save the company, totaling more than $170 billion. The White House dare not allow the company to fail because of the complex web of insurance and investment products that AIG sold to individuals and companies in 130 countries as it raced to become the world's largest insurer. AIG's collapse could affect 100 million Americans, according to government estimates. It is so big and sprawling, so intertwined with institutions around the globe, that its downfall could set off a vicious chain reaction. Upheaval on such a global scale would plunge the U.S. economy deeper into recession, drive up unemployment and stifle hopes for an economic rebound any time soon.

Paddy Power defies the odds

Bookmaker Paddy Power yesterday reported a 4pc increase in pre-tax profits to €79m for 2008 thanks mainly to growth in its online business. The bookmaker saw profits hold in the face of a sharp downturn and said there would be no job cuts or closures. All its rivals have announced such cuts. On the contrary, chief executive Patrick Kennedy reported that the group is well placed to grow the business as it is now able to secure prime high street retail slots previously closed off to bookmakers.

House prices continue to fall

New figures show that the pace of the fall in house prices accelerated in January. Average house prices dropped by 1.4% in the month, according to the house price index compiled by Permanent TSB and the ESRI. This compares with a 0.9% fall in December and 0.5% in November. Over 12 months, the decline was 9.8%. The average price paid for a house in January was €258,006.

However, these findings are not a true reflection of the current situation in Ireland. Dermot O'Leary, Chief Economist of Goodbody Stockbrokers, said in November 2007, that three reasons can be cited for a discrepancy between its expectations of house price falls and the permanent tsb / ESRI House Price Index:

1. The data are reflective of prices at the mortgage payment stage of the house-buying process. This can be some 3-4 months after a sales price is agreed, and, in a slower market, this lag could get extended further. Therefore, there is a significant lag between market prices and the official house price data.

2. The type of properties in the ptsb database may be concentrated towards the lower price range in the market. While recognising the fact that the ptsb data takes account of the different characteristics of the house, the average price in the country is well below the estimates contained in the dataset from the Department of the Environment.

3. Price incentives, which have become common for new scheme developments, would not get reflected in the data.

Bord Gáis enters the electricity market

Bord Gáis has announced that it is entering the residential electricity market later today, with a guarantee to customers that its prices will be at least 10% lower than the ESB for the next three years. The company's chief executive, John Mullins, said it would be a simple process for ESB customers to switch to Bord Gáis, and this would be open to all 1.8 million registered households who use electricity.

This announcement amounts to a huge shake-up of the residential electricity market and, Bord Gáis claims it will result in immediate and substantial savings for customers. From midday today, any ESB customer will be able to switch over and get their electricity from Bord Gáis by either phoning the company or going online. It hopes to expand its customer base to more than a million people in three years, by promising its bills will always be at least 10% lower that the ESB. On gas prices, Mr Mullins said he believed that they would go down considerably this year - with prices more than 25% lower next December than they are today.

Domino's to get a bigger pizza the action!

Recessions are not bad for everyone. Some industries thrive in a downturn. Many qualms and quibbles go out the window as needs triumph over desires. Fast-food outlets are a case in point. Their food is generally seen as being 'recession-proof'.

Yesterday, the London-listed arm of Domino's Pizza announced it is planning a sizeable investment in Ireland in order to cope with growing demand for its products here. The company's plans include 10 new Irish stores in 2009. This follows on its seven new outlets last year. Each new store creates an average of 30 jobs.

The company, which operates the franchise for the global brand in the UK and Ireland, currently has a commissary facility in Naas, Co Kildare. It was built for €15m and produces and distributes pizza bases and other products to the chain's stores across Ireland.

Domino's Pizza UK & Ireland said yesterday that full-year sales jumped 18.4pc last year to £350.8m (€397m), while pre-tax profit rose 24.7pc to £23.4m (€26.5m). Like-for-like sales in 450 outlets were up 10pc. At the end of December, the firm had 553 stores between the UK and Ireland, with 41 in the Republic of Ireland and 13 in Northern Ireland. Its store in Tallaght is one of the busiest Domino's outlets in the world.

Four Star Pizza, the wholly Irish owned franchise based pizza company, announced last month it will create 200 jobs over 2009, with the opening of ten new franchise locations here.

It'll be the debt of us!

Fears are mounting that Ireland could default on its soaring national debt pile, amid continuing worries about the troubled banking sector.

The cost of buying insurance against our government bonds rose to record highs on Friday. Debt-market investors now rank us as the most troubled economy in Europe. Pledges made by the Government to support the banking sector now amount to 220% of our annual economic output. The total loans held in Irish banks are more than 11 times the size of our economy.

Following the scandal at Anglo Irish Bank over undisclosed loans, the market fears there are more hidden problems that could ultimately fall to the state to resolve. With the Government set to borrow an additional €15 billion (£13.4 billion) this year, the national debt pile will hit €70 billion. The cost of insuring Irish debt hit 350 basis points on Friday, meaning that for every €100 of debt, it would cost €3.50 to insure against default. A year ago it would have cost 10cent to insure every €100 of our debt.

One possible solution might see Germany buy billions of euros of Irish government debt through a fund set up by the European Central Bank.

Football's Richlist

Manchester United have come second in the list of the world's richest clubs, while Real Madrid stay top for the fourth year in a row. Deloitte's Football Money League, based on financial information for the 2007/08 season, features seven English clubs in the top 20 positions. The authors said that United would have been top of the Money League if the pound was still at June 2007 levels. Chelsea, Arsenal and Liverpool are fifth, sixth and seventh respectively.

"If the exchange rate value of the pound had not depreciated, there would have been nine, rather than seven English clubs in the top 20 and Manchester United would have topped the Money League ahead of Real Madrid," said Dan Jones, partner in the Sports Business Group at Deloitte.

United won the English Premier League and UEFA Champions League in 2008, posting a significant 21% pound-denominated revenue growth. The list had been headed by Manchester United for eight years until Real Madrid deposed them. "Whilst Real Madrid's 4% revenue growth in 2007/08 is more modest than recent years, the club has now doubled its revenues since 2002 and enjoys a lead of 41m euros [£32.5m] over Manchester United," said Mr Jones. "With the club having announced that it is budgeting for revenues of 400m euros in 2008/09, it will be difficult for rivals to replace Real at the top of the Money League next year."

The other English clubs in the top 20 are Tottenham Hotspur (14th), Newcastle United (17th) and Manchester City (20th). All the top 20 clubs represent Europe. Germany and Italy have four clubs each in the top 20, Spain and France have two clubs each.
Fenerbahce became the first Turkish club to enter the top 20 since the creation of the list of the world's richest clubs in 1996/97.

WORLD'S WEALTHIEST CLUBS BY REVENUE:
1) Real Madrid: £289.6m
2) Man Utd: £257.1m
3) Barcelona: £244.4m
4) Bayern Munich: £233.8m
5) Chelsea: £212.9m
6) Arsenal: £209.3m
7) Liverpool: £167m
8) AC Milan: £165.8m
9) AS Roma: £138.9m
10) Inter Milan: £136.9m
Source: Deloitte: 2007/8

New corporate logos for the recession?

What is an economic depression?

The London Times is running regular briefings to coincide with Target Two Point Zero, the Bank of England's contest for sixth-formers in the UK run in conjunction with the newspaper. The competition challenges students to play the role of the Bank's Monetary Policy Committee (MPC) and recommend the best level for interest rates. This week: After Gordon Brown talked of a new Depression, they explain the phenomenon.

How is an economic depression different from a recession? First of all, it is important to understand that there is no precise or agreed definition of a depression. Even now, 70 years after the last experience of the 1930s economic slump that became know as the Great Depression, the world's leading economists are still wrangling over what caused it and what it meant. Defining the term is made more difficult since the last experience of anything like a depression was in this period, more than seven decades ago, which is well beyond many people's living memory. In general, it is accepted by most commentators and experts that a depression is a very severe form of recession: one involving a deeper decline in GDP and most other measures of economic welfare, including employment, and which probably lasts for significantly longer than the typical recessions experienced in modern times.

How different is the scale of a depression from a recession? Very different. In modern times, the typical experience of recession in big Western economies has been a period of declining GDP that has lasted perhaps three to six quarters, and the typical fall in GDP over the period of recession has been in the order of 1 to 3 per cent. Some recessions have been even briefer and less deep, but all of these have still been bad enough to cause considerable hardship and to alter the business landscape significantly. By contrast, the Great Depression in the United States stretched from 1929 to 1933, and involved a collapse in the economy that saw national output and income shrink by 29.6per cent. GDP dropped by 8.6per cent in 1930 alone, by 6.4 per cent in 1931 and by 13 per cent in 1932. Recovery in 1934 to 1937 was followed by a relapse into recession. It was only the huge rise in industrial production in the US war economy of the early Forties that ended this profound period of economic woes in America.

What was the toll from this slump? The impact was brutal. The proportion of the workforce without jobs surged from 2 per cent to a quarter of those of working age. Output from US factories was halved, consumer prices fell by a quarter as the economy slid into deflation, four-fifths of the value of the US stock market was wiped out, from the Wall Street crash onwards, and house prices fell by nearly a third.

What about Britain in the Depression? Britain's experience of the Thirties was grim and painful, but far from as searing as that of the US. British GDP plunged by about 5 per cent, compared with the 2.9 per cent drop suffered in the worst modern recession in the early Eighties. During the early Thirties, British unemployment doubled from 7 to 15per cent of the workforce. However, this experience was much less severe than the slump that the UK suffered in the early Twenties. Although that is not part of what we know as “the Great Depression”, it clearly was a depression on the same scale. In the wake of the First World War, UK GDP plummeted by 23 per cent, mirroring the experience of America a decade later.

www.timesonline.co.uk/economics
www.timesonline.co.uk/targettwopointzero
www.bankofengland.co.uk/education/targettwopointzero

Increased unemployment lowers oil prices even further

Oil prices have fallen by more than $1 a barrel as rising US unemployment has led to further fears of weakening demand for oil among US consumers. US light, sweet crude settled down $1 at $40.17 a barrel while London Brent slipped 25 cents to $46.21.

The US unemployment rate rose to 7.6% in January, up from 7.2% in December, according to official figures - the highest level since 1992. The rapid rise in unemployment suggests the US recession is deepening. Companies as well as individuals are cutting back on spending.

Officials from the producers cartel, the Organization of the Petroleum Exporting Countries (Opec) have said that current price level is too low for its members to make enough revenue or encourage investment in new supply.

P0rn Again

Despite NBC banning sexually explicit ad content from the Super Bowl broadcast, Comcast somehow goofed with 2:47 left in the game and broadcast a 30-second, X-rated clip—from the adult channel Club Jenna—to about 80,000 subscribers watching the game in the Tucson area. According to The Huffington Post, Comcast suspects the work of hackers.

The company is paying each of its affected customers a $10 refund. Freakonomics asks “How did they decide $10 was the correct amount?”

Furthermore, if $10 is Comcast’s estimation of the damage 30 seconds of porn incurred on the average viewer, should it have paid more to families watching the game with small children, or — since the porn clip interrupted the game right after Larry Fitzgerald’s last touchdown in the game — Cardinals fans? And most importantly, what about the people who enjoy porn? Should they send back the refund — perhaps with an extra dollar or two? :o)

Increased disposable income to go into savings?

David Smith, Economics Editor with the Sunday Times has a well written article today dealing with how the reduction in interest rates amongst other factors will mean an increase in consumers' disposable income - which people will save rather than spend.
(I have abridged the article slightly).

Wandering round Poundland, as one does, is a bit different from the rarefied atmosphere of Davos but is an experience to be recommended. In this Aladdin's cave, which has everything from the latest Rupert annual, six-packs of rare incandescent light bulbs and mini tool kits to household goods, toiletries and non-perishable foods, there is a sense of wonder that anybody can make this stuff for £1, let alone sell it.

The Poundland effect underlines how tough things are for higher-priced retailers, which is why it is expanding while many of them are shrinking. That, however, is not the only message. Just down the road is a 99p shop and, unless my eyes were deceiving me, it was busier. To economists, if not to Poundland, that is gratifying. It shows price signals work, even at low prices and that the fashionable "left digit effect" is alive and well.

This is the effect that makes us more likely to buy at £9.99 than £10. By the same token, 99p is more appealing than £1. I am tempted to open a 98p shop, though experts say that to make a real difference you might have to go to 89p, if not 49p. The real point is that one of the stories of 2009 will be that consumers can buy cheaply, if they choose to, and not just at the discounters. We are moving into a period where inflation will be negligible, and for periods negative, in spite of sterling's fall.

This, and what will be a very gloomy economic forecast, prompted the Bank to cut interest rates from 1.5% to 1%. As I wrote last week, I would not have done so at this time. But how strange it is that such low rates have become almost commonplace. Low rates are providing a bonus for borrowers, bringing big reductions in mortgage payments. More generally, low inflation — helped by the government's temporary Vat cut — will provide a boost to real income growth. Just how big was underlined by the National Institute of Economic and Social Research in its latest review.

It predicts real household disposable income will jump 3.3% this year, well up on last year's increase of 1.5% and 2007's zero growth. If this is right, it will be the best year for income growth since 2001. We will not have had it so good for a long time. The question is: what will people do with it? Simon Kirby and Ray Barrell, economists at the institute, are pretty sure they will not spend it. Alongside that 3.3% rise in incomes they predict a 3.8% slump in consumer spending. Saving, not spending, will be the watchword this year, they say, with the saving ratio predicted to jump from 1.3% last year to 7.1% this year.

It is an interesting forecast and a brave one. Lots of unprecedented things are happening but that would be an unprecedented divergence between income growth and spending. Barrell points out that something similar happened in the early 1990s, but spread over three years. This time, he said, the effects were coming through much quicker, with falling housing wealth and lack of availability of credit being the two main factors pushing spending lower.

...

Surely, you will say, this recession is all about households deleveraging — paying off debt — and a sharp drop in consumer spending will be a natural consequence of that. But, as I have pointed out before, consumer spending has been rising at a slower rate in recent years and was, in any case, mainly financed out of income growth.

...

There will be a two-way debt battle in the coming months, rising unemployment making it hard for a minority to service their home loans, while lower interest rates will make it easier for the majority.

Where will this leave spending? Nationwide's consumer confidence index is at a record low, though the proportion of people saying now is a good time for a big purchase has risen again. That is important. Official figures show retail sales held up pretty well through to the end of last year, but that spending on big-ticket items was very weak. Ask any car dealer.

In the end, confidence is the key. Consumer recessions are not caused by people cutting back who have to. They happen when those who are not badly squeezed decide it is prudent not to spend. This is Keynes's paradox of thrift; we would like a higher level of savings but not right now.

It could go either way. But if the institute is right in its calculation of the rise in real incomes this year, I would be quite surprised if it is also right on spending.

Full article

Live register hits 9.2%

Official figures have confirmed that the number of people on the Live Register hit a record high of almost 328,000 in January. The Central Statistics Office said the numbers signing on rose by almost 36,500 from December to 327,861. The Taoiseach told the Dáil this morning unemployment could reach 400,000 by the end of the year.

The Live Register figure has now surged by more than 80% over the past 12 months. The seasonally adjusted figure rose by 33,000 to 326,100, while the unemployment rate jumped to 9.2%. up from 8.3% in December.

Bloxham's Alan McQuaid described the data as 'horrendous', and underlined the fact that the Irish economy was now in crisis mode. 'Apart from the sharp fall in construction employment, other sectors like manufacturing, retail, transport, and financial services are starting to significantly feel the pinch too,' he added. Davy said welfare payments would rise by at least €350m based on the last month alone, though the Government will get some of this back through taxes as that money is spent. The stockbroker expects the unemployment rate to reach 13% by the end of 2010.

The current 9.2% rate is the highest rate since December 1997. This is up from a low of 3.7% in February 2001, but remains below the average unemployment rate of 16% in the eighties.

Given that we expect the weakness in the labour force will accelerate in coming months, double-digit rates of unemployment will likely come sooner than we previously thought, and we now see the rate hitting 10% in coming months. This estimate takes into account a downward revision to the Live Register estimate of unemployment when the official unemployment figures are released in the Q4 Quarterly National Household Survey, as this measure does not include part-time workers who are eligible for unemployment benefits.

Central Bank predicts 4.7% drop in Irish GDP in 2009

The Central Bank says it expects the economy to contract by 4.7% this year. The country continues to be impacted by global recession and falling demand in what the bank called 'an exceptionally difficult period for the Irish economy.' In its latest economic forecast - the first of 2009 - the Central Bank says the contraction will lead to significant job losses with 100,000 fewer people working at the end of the year. The bank also says that unpalatable short term measures are needed if the economy is to stabilise in 2010. The Central Bank says that GNP will slow by 4.7% in 2009, while GDP will contract by 4%. This compares to estimated figures of negative GNP growth of 2.6% for 2008 and negative GDP growth of 1% for 2008. The figures are a marked slowdown from the GNP growth of 4.1% seen in 2007, while GDP growth registered 6% then. The Central Bank also says that consumer spending will slow by 2.5% this year while inflation will fall to an average rate of -1.9%.

'We are in an exceptionally difficult period for the Irish economy,' commented Central Bank Governor John Hurley as he published today's economic bulletin. 'Our forecasts published today indicate a further serious downturn in the coming year,' he added. He said that to support a return to a more stable economic activity in the medium term, difficult decisions have to be taken and implemented now.

'In particular, it is vital that we move to correct the sizeable deficit in the public finances and that we improve our competitiveness position, which is all the more important in the light of the global downturn,' he said. In the housing market, blamed for many of the country's current ills, the Central Bank says completions could fall to as low as 22,000 units this year compared to 52,000 last year. Last year saw the first drop in employment in many years. The Central Bank says that trend is set to accelerate and assuming some emigration, unemployment is likely to average 9.4% of the labour force this year. However, the bank also believes that Ireland has the potential to grow strongly again if productivity can be improved. But it adds that the potential is not a given and it warns that unpalatable measures are needed. The bank says the largest item of Government expenditure - the public sector pay bill - is 'beyond the scope of current resources'. It says the public sector needs to use its purchasing power to drive hard bargains with the services sector.