Strength in Adversity
There are encouraging aspects in the UK’s July unemployment figures, and they are the ones that other commentators seem to think are discouraging.
Firstly, the number of people in part-time employment rose. This data has been seized on as having contributed to the phenomena of employment rising while the economy contracts but I doubt if it could have had all that much of an impact on GPD figures. Part-time workers still increase output, just not as much as full-time workers.
The more noteworthy point is that people are prepared to take on half a job rather than have no job at all. Given the way that those administering the Jobs Centres punish anyone who takes on temporary work, it is good to know that part-time work is providing an alternative way back into employment.
Secondly, the number of workers unemployed for more than two years has edged downwards. Just as it is easier to get a new job if you already have one, it is increasingly difficult to find work the longer you are unemployed, and the will to seek work diminishes over time.
Again it is possible that these people are moving into less skilled, less productive jobs but they are jobs nonetheless and they contribute to the national wellbeing.
On the whole, I belong in the camp that is saying the GDP figures are incorrect and will eventually be revised upwards. We are still in a five-year recession that will continue for at least another year but the trough is not as deep and wide as output figures suggest.
Somewhat less welcome are inflation figures showing a rise in the consumer and retail prices indices last month. Half of June's fall has been wiped out, apparently because retailers cut summer clothing prices a month earlier than usual.
There are serious implications there for retailers, which is why I continue to avoid the sector despite an upward revision in June retail sales figures from 0.1% growth to 0.7%, followed by growth of 0.3% in July.
Money is still in short supply and consumers have, on the whole, sensibly reduced debt rather than continue with unsustainable credit card bills. Part time and less skilled work puts less extra money into the pockets of consumers, so retailers will continue to struggle.
Inflation will ease further, though not rapidly. Fuel prices have edged up again and will feed through into the rest of the economy. Remember that equity shares represent the best investment in an inflationary environment, and inflation will continue above the 2% target for some time despite the protestations of the Bank of England to the contrary.
Ringing the Changes
Two prime ministers since the Second World War transformed the economic landscape, though in very different ways.
One was Clement Attlee, whose programme of nationalisation was broadly accepted by subsequent Conservative governments until the propping up of uneconomic state industries came into disrepute.
The second was Margaret Thatcher, whose obsession with private enterprise as the way to run nearly everything was blithly continued under Tony Blair's Labour administration and lives on under the coalition.
These thoughts went through my mind after the decision to award the West Coast rail franchise to FirstGroup (FGP) rather than the current holder, Virgin Rail. If in doubt, the government will always favour the highest bidder (or, as appropriate, the lowest cost) irrespective of whether the bid is viable.
Thus it matters not that FirstGroup may be unable to complete the franchise, just as two over-bidders have had to walk away from the East Coast franchise. Payments are heavily loaded towards the second half of the contract, so First can--if its passenger numbers fail to stack up--enjoy the cheap first seven years and jack in the expensive later seven.
That will be a problem for another chancellor in another government. Meanwhile the basic principle that private enterprise should take the risks and rewards of government projects continues to be nonsense. Private enterprise takes the profits and government retains the risks.
Grossly overpaying for West Coast has been used as an argument for shunning FirstGroup shares. The possibility of overpaying is rarely if ever a reason to avoid any company that does public sector work, simply because rarely if ever does private enterprise overpay.
Some day we shall have another Attlee or Thatcher who will come in and rescue the taxpayer. In the meantime, keep looking for sound investments among companies who take government money with impunity.
Market Performance (August 13-17)
FTSE 100 Index: +0.09%
FTSE 250 Index: +1.28%
FTSE UK All Share Index: +0.28%
FTSE Small-Cap Index: +1.81%
FTSE AIM 100 Index: -1.47%
FTSE Fledgling: +0.62%
Market Updates (August 13-17)
Friday: When Markets Are Quiet, Prepare Your Next Move
Thursday: FTSE Flat as Investors Wait for Central Bank
Wednesday: Standard Chartered Continues Climbing on Flat FTSE
Tuesday: Sorry, market update unavailable
Monday: Petrofac Leads FTSE Lower
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