The end of days (again)

I don’t want to be that guy but all the signs point to that we’re heading for a recession

18th December 2018

In 2007, I was selling boiler repair packages in a call centre, making okay money for an 18-year-old, when I spotted an odd phenomenon.

While I had been earning a tidy commission without trying all that hard, a few short months later, in mid-2008, something had changed. Customers were becoming reluctant to part with their money, even though, if anything, I’d become better at persuading them to do so.

An ill wind was coming. It turned out to be the Great Recession.

Two years later, I first started writing about economics. My formative years as a journalist were spent analysing what happened to the global economy in the early 2010s and puzzling over how Britain didn’t notice anything was amiss until it had already begun. Later still, I followed our country’s attempts to get back on its feet, its many years of tiny flutterings of promise and, only fairly recently, the solid green shoots of economic growth.

I’m not an economist but it doesn’t always take an economist to notice when things aren’t quite right

I’ve written hundreds of stories delving into the ups and downs of our economy and the cause-and-effect of our money moving around a changing system. Of course, I’m not an economist but, as I’ve pointed out, it doesn’t always take an economist to notice when things aren’t quite right.

It’s rare I find myself writing about economics at The Overtake but I thought I’d come out of hibernation with a warning — it looks like we’re heading for a recession and here are all the signs.

Stock markets are falling

There’s no recession like a global recession, amirite? And with the US economy being arguably the biggest single influence on the stability of the global economy, we’d better hope the yanks are flourishing.

Well, they have been. Since Trump came into power, stock markets have risen to record highs — in fact, so high that 65% of investment managers last year thought we were in a tech bubble. Well, it seems like they were probably right. Since the start of October, US-based indexes like the Nasdaq, Dow Jones and S&P 500 have been falling rapidly.

A bear market doesn’t always lead to a recession, but a recession always comes after at least two consecutive quarters of a bear market

In the UK, the picture is even worse. The FTSE 100 is dropping and the FTSE 250, a better measure of what’s really happening in Britain because it has more British companies, is at its lowest since 2016.

We’re in a bear market, which means that investors are being cautious. A bear market doesn’t always lead to a recession, but a recession always comes after at least two consecutive quarters of a bear market.

Bull and bear markets; named because one is full of bull while you just have to grin and bear the other… probably

Productivity is (still) bad

Britain suffers from something affectionately known as the “productivity puzzle” — no matter what changes in our economy, our productivity has stayed flat for 10 years. A study by the Office for National Statistics last year put this down to less labour mobility — essentially people being trapped and unable to move to better jobs. Some of this is to do with house prices, as people are less able to move to more expensive parts of the UK for a new job. Meanwhile, salaries in richer parts of the country are increasing quicker than in poorer parts, so while productivity isn’t getting worse right now, it’s not going to get better in a hurry.

House prices are plummeting

In case anyone mistakenly thinks the housing market is booming 📷 Richard Croft

Even people who are not particularly interested in economics will know there’s a link between house prices and recession. An overinflated house price market can spell disaster for an economy when the bubble bursts. When prices are increasing at a record rate (which they have been) it’s a bit of a shock to find out that we’re heading for the worst annual performance in a decade as housing prices dropped £10,000 at the end of this year.

The actual price of a house is still too much for most first-time buyers but the problem is that if prices continue to drop at this extreme rate, many people with mortgages will soon enter negative equity — basically saddled with mortgages bigger than their house is now worth — they’ll never be able to move and their mortgage payments could go up to more than they can afford. This is never good news, for anyone.

Brexit is frightening everyone

If there’s one thing money likes, it’s certainty. The more chaotic the country, the sadder its economy. This is because when people are scared about the future, they’re not in a rush to spend money. While something as big as a recession usually has numerous factors, they absolutely can be triggered by one-off events when the conditions are right (or wrong!) — in essence, the last recession was triggered by the collapse of just one company, investment bank Lehman Brothers.

The pound is low

Last year, the pound sunk to an all-time low ahead of the Brexit vote, buying just $1.22. While it bounced back a bit, up to $1.41 in March, it’s been falling since and we’re back down to $1.26. Because they’re global, currency markets can be hard to predict but they tend to be influenced by factors like stability and economic influence — things we’ve managed to spectacularly chip away at recently.

People don’t want to (or can’t) spend as much money

While an ordinary person might not specifically see the effects of exchange rate markets in their everyday life, they might spot that people aren’t shopping that much. This year is the worst year since the recession for shopper footfall — the number of people literally out shopping on our high streets and in shopping centres. In fact, it’s likely some chains will collapse in January, analysts have warned.

Online stores are in hot water too. ASOS shares fell a whopping 40% yesterday after it issued a profit warning. Some of that can be blamed on a mild winter so far — as silly as it sounds, people just aren’t buying as many new items of winter clothing — but it also looks likely to be down to people having less money to spend on clothes.

Basically, the stats show that consumer confidence is dropping, retail sales are dropping and people are saying their personal finances are in worse shape than the same month last year.

Small businesses are at rock bottom

In a similar vein, small businesses are more worried than they’ve been at any point since 2011. More than two in five small businesses expect their performance to worsen over the coming three months, up from just less than a third in the summer. Small firms are particularly worried about getting the right staff, with immigration from the EU down to a six-year low.

A bustling, exciting, metropolitan high street in 2018

Underemployment is the new unemployment

Unemployment was always a good indicator of the health of an economy. Where there was high unemployment, there was often trouble brewing. Unemployment in the UK is now at record lows of 4% — but that isn’t necessarily good news.

The divide isn’t between the employed and the unemployed but between those with full-time salaried jobs and those living hand-to-mouth in the gig economy

The number of people underemployed — not able to get enough hours or in a zero-hours contract — is now double what it was during the recession and worse than nearly every country in the EU. These days, the divide isn’t between the employed and the unemployed but between those with full-time salaried jobs and those living hand-to-mouth in the gig economy.

So, while alarm bells are not ringing over unemployment rates, perhaps they should be ringing over chronic underemployment, which definitively leads to more poverty. And, you guessed it, poor people getting poorer — though at this point it probably doesn’t need to be spelled out — that’s a classic indicator that recession is on its way.

Of course, these signs don’t definitively spell anything gloomy but this combination (and many more smaller factors that none of us have the patience to go through) is more than enough to lead to a severe economic downturn. Merry Christmas!

18th December 2018