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Monday, 21 January 2008

Worst day for FTSE since 9/11

Today was the worst day for the FTSE 100 since the attacks on the Twin Towers. Fears that recession in the US is now more a probability rather than a possibility has fueled fears that this will have an impact on company profits in the United Kingdom, particularly the large, internationally focused firms.

The worst hit companies were commodity based firms. The slowdown in the US and the likelihood that China will put the breaks on is set to reduce the demand for commodities such as copper. As a result the price of copper and other commodities are likely to fall in 2008 and as such so will the profits of the major mining companies. Other factors such as stalled aquisition plans also had a negative impact upon firms in this sector.

With the US markets closed today the full impact of today's fall will start to become clearer tomorrow. The market has been particularly volatile during the past six months and as such it would not be a great surprise if investors believe the markets went too far today and start to buy some shares which now look cheap.

However this level of nervousness and instability is not a good sign for the markets and the wider economy. Markets now seem to be coming to a conclusion that the United States is entering - or may have already entered - a recession. This will have a negative knock on effect upon the whole of the international economy. Although it may take some time to directly impact the UK, it will put downwards pressure on exports from the UK - not just to the US but internationally as the whole world slows. Weaker financial markets will also hinder activity in the financial services sector in London which provides many jobs and is a principle driver of the whole economy.

Coupled with the credit crunch the financial system is not looking in good health. This coupled with the slowdown in the US, over stretched consumers, a weakening housing market, high government debt and continued inflationary pressures will not make 2008 a very tough year. A recession in the UK is still not a likely outcome, however it won't take to much for it to become more so.

Get ready for rising unemployment and a tougher labour market - if you're looking for a job expect less opportunities and greater competition. If you are moving jobs choose the sector and company carefully because not all companies will survive 2008.

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Wednesday, 3 October 2007

Election time – unnecessary and bad for the jobs market.

Although we don’t know yet whether Gordon Brown will call an election to take place next month, it is becoming increasingly likely given the Labour Parties extensive leads in the polls. Gordon Brown doesn’t need to call an election until 2010 but it seems that he believes by calling it now he will be able to increase his majority and gain a mandate to rule.

Given the outlook for the economy this is probably the best time for Gordon to call an election. Although early signs of the economic slow down is starting to show in the crisis at Northern Rock, slowing house price growth and the loss of jobs in the City of London this has not yet had a significant impact upon the wider economy. As such, Gordon Brown, whose legacy is intrinsically entwined with the economy, is likely to face heavy criticism should the economic environment turn sour.

So what is the likely impact of an election on the labour market?

In the short term the election is unlikely to be good for the jobs market. Political uncertainty is never good for business investment and planning and as a result businesses will tend to slow their expenditure and put back decisions until after the election. Although this has a bigger effect in countries where the political divide is greater, such as France, it will have an impact, especially given the current economic environment of financial uncertainty.

In the longer term the outcome of the election will help to decide the impact on employment market. One risk is that the election will result in a hung parliament. If this is the case then the result could be political paralysis. The Liberal Democrats will eventually provide the support so a government can be formed, however, the decision making process will be significantly slower. Therefore if problems such as the current credit crunch start to have a much wider and deeper impact on the economy, the government of the day would be less able to act decisively to stem the decline. Again this situation adds to risk and uncertainty, making business less willing to invest in the United Kingdom, keeping their money in the bank or sending it elsewhere.

If either the Conservative Party or the Labour Party is elected with a majority then the outlook for the jobs market will be much better. (In my opinion this is a good case for the first past the post system, but that’s beside the point). Having a party that can act decisively reduces economic risk.

Both of the parties have relatively similar policies when it comes to the jobs market. Neither is proposing a massive hike in taxes, as the Liberal Democrats are, which would harm the economy as the highly skilled and the high net worth, which support and create jobs leave the country or become tax exiles.

The Conservative Party in the long term is likely to reduce the number of people that work in the public sector. Therefore as a result if you currently or looking to work in this sector, then your employment prospects might be diminished. Nevertheless this is not entirely a bad thing. If the reduction in public sector employment leads to lower taxation then this should stimulate economic growth as people have more money in their pockets to spend on other sectors in the economy.

Public sector employment also acts as a barrier to private sector employment. The public sector usurps markets and skilled employees from the private sector, and as a result hinders the growth of this sector. Without the hindrance of profit requirements and short-term cash flow needs the public sector can continue to operate despite its lower productivity compared to the private sector. Therefore, a slowing of public sector employment growth should help the private sector to flourish as it replaces the public sector. This private sector employment is likely to be of higher productivity with greater returns, which in turn will help to boost employment in the wider economy.

The outcome of the election is not a done deal, but nor is the outcome for the jobs market. There currently exists plenty of risk in the economy and the uncertainty of an election in both the short and the long-terms may act to unsettle to economy further. This election is a purely political act, as in many ways is not in the national interest, and could further weaken employment prospects.

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