Don't Panic, Don't Panic ...

Some of you may be old enough to remember Dad's Army, in particular Corporal Jones' stock phrase: "don't panic, don't panic". It's one of those phrases that comes to mind whenever I learn a bad piece of news that quickly gets spun into 'the-world-is-ending' kind of headlines.

I'm thinking of course about today's news that the Live Register of unemployed workers crossed the 200,000 level last month for the first time in nine years. This brings the unemployment rate to 5.4% - uncomfortable for those affected, but hardly a disaster in the scheme of things. Or to look at it another way, back in 1999 (when it was last at 200,000) there were almost half a million fewer people in paid employment than there are today - such has been the power of the economy to create jobs since the start of the decade.

The CSO slipped out another report today that didn't attract quite the same level of attention - their Measuring Ireland's Progress Report for 2007. It reinforces the point that the problems we face now are far, far more manageable today given our depth of economic wealth and productive capacity than at any other time in our history. We will of course face new and significant challenges in the months and years ahead (including energy and food shocks), but we are blessed to be so much better able to manage such shocks without the harm they would have caused even in our recent past. Don't panic, indeed.

Chien Méchant

As I noticed on my last visit to France, you don't meet many Eastern Europeans here. Okay, there are a few Russians but they seem to keep themselves to themselves in well protected villas with chien méchant notices on the gates ...

Of course this is due to France's decision not to allow the recent waves of countries joining the EU access to its labour market. It does mean that you meet French people in every restaurant and shop you visit - in marked contrast to Ireland. You would also expect it to mean that France has a low unemployment rate (if that was the intention of their decision) but it doesn't. The latest Eurostat data shows France having the fourth highest unemployment rate of the EU 27 countries, as shown in the chart. Incredibly, youth unemployment (under 25s) is also very high in France (18.1%) despite the availability of the kind of low skilled, entry level jobs 'exclusively' for French people.

Ireland and the UK chose a different path - allowing the first wave of Eastern European entrants free access to our labour markets. Though the jury is still out on whether there has been a net benefit to the host countries (and will be for at least another turn through the business cycle I reckon) we do not seem to have suffered the high youth unemployment in particular that the French obviously feared. Nor are we likely to: I'm with Brendan Keenan in today's Irish Independent when he suggests that even if Irish unemployment goes as high as 8% in the next year or two we'll still have fared much better than expected given the scale of the global economy's problems.

Still, I can't help noticing that France's unemployment rate is going in the right direction (down from 8.6% in March 2007 to 7.8% in March 2008), whilst our's is going in the wrong direction: from 4.6% to 5.6% over the same period. There's no Irish demand for the economic equivalent of the chien méchant just yet vis-a-vis immigrants: but don't be surprised if it nevertheless surfaces as a major issue in the next general election as we get closer to a French level of unemployment.

It's Getting Bumpy

This is the moment in the flight when the voice announces that "we're experiencing a little turbulence so please remain seated and fasten your safety belt". Falling consumer confidence, falling house prices and rising unemployment are sure signs that it's going to get bumpy for Irish marketers in 2008.

Nevertheless, the Central Bank points out in its Quarterly Economic Commentary published today that consumer spending is forecast to rise from €90.6 billion last year to €96.5 billion this year. That's nearly €6 billion of extra spending. Hardly a message of doom and gloom.

So maybe we need to take Samuel Brittan's advice and 'buck up'; whilst also buckling up for the bumpy bits ahead.

Reduced to Sell

I got this from a loyal TA reader (thanks Jimmy!) – proof, if proof was necessary, that the laws of economics have finally caught up with the estate agents, construction companies and house sellers of Ireland.

I have noticed a growing number of estate agent signs mentioning price reductions. Though the headline figures suggest only modest house price reductions in Ireland (-1.9% year-on-year in August according to the ESRI), news from the United States shows how things might develop if ‘reduced to sell’ catches on.

So there you have it: if you push the price up then demand will fall; if you reduce the price then demand will rise. Economics 101 as the Americans would say.

On a related matter – the Consumer Confidence Index for Ireland took a dive over the past month (see panel opposite): from -5 in September to -12 in October. Published by the European Commission, the key findings are that consumers are worried about the general state of the economy, and particularly about unemployment. Though their concerns have not translated into any immediate behavioural changes (savings intentions and general purchase intentions remain broadly unchanged), bigger ticket purchases such as houses and cars look set to be (even more) adversely affected than they have been recently.

For example, the index of ‘Intentions to Buy a Car’ for Q4 2007 is close to its all time low reached in Q3 1993. So car dealers take note and remember your basic economics: ‘reduced to sell’ works.