Tuesday 22 January 2008

Are we talking ourselves into a recession or are we already in one?

Recessions are usually characterised by a decline in economic activity over three quarters.

This is typically accompanied by falls in consumer confidence and spending, caused by price inflation, rising unemployment and a bear stock market.

The stock market has more red ink than black and share prices in sectors such as banking, property and retail have taken a particular pounding. Financial companies, particularly those involved in the USA’s sub prime shambles have suffered badly.

Some might say that their plight has more to do with greed, fraud and incompetence than general economic woes.

And a correction in house prices has been anticipated for at least two years when the ratios between wages, rents and house prices began their journey into economic craziness. The Economist in 2005 said that prices would fall by 20%, proving again that it is possible to forecast events or timing, but rarely both correctly.

Problems in the high street are being presented as another indicator of the recession and though Marks and Spencer has had a decline of 2.5 % in their Christmas sales, John Lewis at one end and Primark at the other have done well. Online sales are on the up.

So what is really happening?

Unemployment is falling. Oil prices as defined by Brent Crude are 10% down on the $100 dollars a barrel threshold. Inflation is still a risk which is why interest rates remain on hold. If consumers rein in their spending it will be no bad thing and if savings ratios start rising again, that’s all to the good.

In the advertising industry, a slump in ad spend is indicated by the IPA’s Bellwether report. Advertising activity is a function of corporate liquidity and consumer spending.

Previous recessions point out the dangers inherent in reducing communication investment in times of economic slowdowns. It will be even more damaging now that we have more knowledgeable and empowered consumers.

But advertising weight alone is not enough, nor clever creative advertisements.

Emulate Steve Jobs whose Apple showroom in Regents Street is one example of how to do it correctly. Give people what they want and they will besiege your store.

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