British Food Industry More Competitive In Future

Total factor productivity (TFP) of the UK food chain grew by 0.7% in 2011 and has continued to grow since 2002 making Britain's food industry more competitive. The food sector plays an important part in the economy accounting for 7% of Gross Value Added.

The food chain is made up of four parts: food retail, food manufacture, food wholesale and non-residential food catering. TFP measures the efficiency with which inputs are transformed into outputs. Productivity in both food manufacture and food wholesale has risen since 2000 while food retail and catering are much the same as 2000.

Average annual growth in the food chain between 2002 and 2011 rose by 0.7% as compared to an increase of 0.2% in the wider economy.

Business Confidence Still Below Long-Term Average

The business climate and consumer confidence surveys published by the European Commission's Department of Economic and Financial Affairs say that while the business climate has remained stable in January 2013 at -1.09, economic sentiment has increased by 1.4% in both the EU and the euro area. It is the third month in a row that economic sentiment has risen but it remains below its long-term average.

Confidence increased in the services, construction, retail and consumer confidence but decreased in industry in the EU. In the euro area it was much the same picture, but retail and industry remained unchanged.

Output GDP 0.1% Growth

The NIESR estimates that GDP grew by 0.1% in the three months to May 2012 after a 0.1% fall in April. The UK economy has also ceased to contract but remains weak. NIESR also say that negative output will get worse while the economy is stagnant but expect economic recovery to begin in 2013.

Industry decreased from 90.1 to 89.8 between April and May 2012, agriculture and construction remained stable at 78.7 and 91.2 respectively. Private services grew from 99 to 99.4, and public services from 105.7 to 105.8.

Creative Industries Statistics

The creative industries contribution to the economy accounted for 2.89% of Gross Value Added (GVA) in 2009 an increase of 0.07% on 2008 in relative terms but in absolute terms GVA decreased by 1% from £36.6bn to £36.3bn. The biggest contribution to UK GVA from the creative industries came from publishing with 0.92%, then advertising with 0.55% and TV and radio with 0.38% (figures from the Department for Culture, Media and Sport (DCMS)). The sector accounted for 10.6% of UK exports in 2009 of which publishing and TV and radio accounted for the greatest exports of services with 3.1% and 2.6% respectively. There were 106,700 creative businesses in the UK in 2011, up to 5.1% from 4.9% in 2009 and 108,820 creative local units, an increase from 4.2% in 2009 to 4.3%. The biggest contribution to the number of businesses came from music and visual performing arts with 30,460 or 1.46% of enterprises and 1.21% of local units in 2011. Advertising accounted for 16,101 businesses or 0.77% of UK total and design 14,720 or 0.71%. Creative businesses employed 1.5m people directly or in a creative role in another industry. It amounts to 5.14% of UK employment. It is a small increase on 2008 when the number was 1.44m or 4.99% of UK employment. The music and visual and performing arts were the largest employers in the creative industries sector with 300,000 employees in 2009 or 1% of UK employment. Next came advertising with 0.92% of employment and 268254 people employed, then publishing with 0.84% and 243,809 people.

Confidence Low In Small Businesses

UK SME's are still not confident according to the most recent CBI SME survey. Output is still at the same levels as last quarter but new orders are falling. Concern about the political and economic uncertainty increased sharply the survey suggests.

OECD CLI Suggest Slow Down In Recovery

The Composite Leading Indicators (CLIs) published by the OECD for April 2011 suggest a slight loss of momentum in most major economies with the US the exception. Stability in the pace of expansion was suggested in Germany and the UK but France, Italy and Canada show signs of a slowdown. Signs of a slowdown also appear in China, Brazil, India and Russia.

OECD CLIs Show Signs Of Expansion

The composite leading indicators of the OECD countries for February 2011 signify continued expansion in the economies of most member countries. The OECD area annual growth rate was 1.8% compared with the Euro area 1%. The trend of expansion is continuing in Germany and the United States. The rate of expansion seems to be slower but stable in the UK. France and Canada are possibly regaining momentum but Italy may be losing momentum.

Russia seems to be continuing its current economic expansion phase while China shows signs of more moderate economic activity. India is pointing towards a slowdown but Brazil should remain near its long-term potential. The Major 5 Asian economies grew by 0.2% over the last year and the Major 7 by 2.1%.

Global Peace Index 2010

The world is less peaceful than last year is the sad news from the Institute for Economics and Peace Global Peace Index (GPI) 2010. The GPI monitors domestic and international conflict, safety and security in society and militarisation in 149 countries. It recorded increases in several indicators including the likelihood of demonstrations and perceptions of criminality. Some indicators seemed to link with the recent global economic downturn.

It is the fourth edition of the GPI and it has increased to rank 149 independent states. An international panel selected 23 qualitative and quantitative indicators to make up the index. The experts included academics, business people, philanthropists and leading international pacifists. The country most at peace was New Zealand followed by Iceland and Japan in third. Iraq was the most war torn country followed by Somalia and Afghanistan.

The GPI results were correlated with several economic and societal indicators to contribute an understanding of what factors help to create and sustain peace in the world. The GPI is collated and calculated by the Economist Intelligence Unit who co-operated in writing the report.

Further Economic Expansion Likely In OECD

The signs from the composite leading indicators of the OECD for February 2010 are still in favour of further economic expansion in the growth cycles of member states. The pace across different countries and regions is however expected to vary. The US and Japan look the most likely to continue to increase their economic activity in coming months with an increase of 0.9 points each. Signs of slower growth were recorded in China 0.0, and France 0.1, and Italy 0.2. The OECD area increased by 0.7 in February 2010. The UK recorded an increase of 0.4 points. The Euro area recorded 0.5 and the G7 0.7 points. India 0.4, Brazil 0.3 and Russia 0.5 recorded fairly moderate increases.

OECD Economies Continue Expanding

The Composite Leading Indicators (CLI) for January released today (5 March 2010) from the OECD seem to show that the economic recovery and expansion that has been taking place in the OECD economies is continuing. The improvement in economic activity in the G7 is only marginally better than that for December.

The index for the OECD area increased by 0.8 points in January 2010, 11.3 points higher than January last year. The increase was evenly distributed between the 'Triads', the US, 11 points, the Euro area up 12.5 points and Japan 10.7 points. The statistics show that all G7 economies are in an expansion phase but Brazil and India and in a recovery phase, even though the 5 major Asian economies combined are expanding.

GDP Down 1.9%

Preliminary estimates of GDP for the first quarter of 2009 from the Office for National Statistics on GDP by gross value added (GVA) suggest a decline of 1.9% on the last quarter compared with 1.6% the previous quarter. They also suggest it was 4.1% lower than 2008. The index for GDP at market prices was 108.1 and has been in decline for 5 successive quarters.

Production which represents about 18% of the UK economy was down 5.5%, a negative acceleration on 4.5%, driven by manufacturing. Agriculture, which now represents only 1% of the economy, actually grew by 0.3% in Q1 2009. It may only reflect the early estimated output from agriculture from DEFRA. Services, representing 75% of the UK economy, reported a fall of 1.2% drove the decline along with production and construction. It compares with a decline of 0.8% in the previous quarter. Of the total, distribution, hotels and restaurants (15% of the economy) also increased by 1.2% thanks mostly to wholesale and motor trades. Business services and finance, which represents about 30% of the economy, declined by 1.8% in Q1 2009. Five of the eight components of the category declined with 'other business services' (10% of GDP) making the biggest contribution. Government services increased by 0.5% on the quarter and 1% on the year.

The Quarterly National Accounts for Q1 2009 show a fall of 2.4% on the previous quarter revised down from 1.9%. It is 4.9% lower than Q1 2008. The index was 110.9 for GDP at market prices and 101.9 for chained volume measures. The household saving ration was 3% compared with 4% in previous quarter. Real household disposable income fell by 2.4% following a 2.4% rise last year. Household final consumption fell by 1.3% compared to a 1.1% fall in the previous quarter. The volume of spending is 3.1% lower than at the same time in 2008. Both government and households were net borrowers. Financial corporations, private non-financial corporations and public corporations were among the net lenders.

Unemployment Rises Again

The numbers of unemployed, the unemployment rate and the claimant count have increased. The number of vacancies has fallen along with the growth in average earnings and the number of inactive people of working age.

The unemployment rate was 7.1% in the three months to March 2009 an increase of 0.8% on previous three months and 1.8% on the year. The number of unemployed is 2.22 million an increase of 244,000 on the quarter and 592,000 on the year. The number of claimants in April was 1.51 million with an increase of 57,100 over the quarter and 710,700 on the year. The economic inactivity rate for working age people for March was 20.7%, a 0.1% decrease on the previous month and 0.2% on the year. The number of people inactive was 7.83million in the three months to March, 29,000 fewer than 3 months ago and 48,000 less than a year ago. Vacancies have fallen by 51,000 to 455,000 in the three months to April and by 232,000 on the year. There were 1.7 vacancies for every 100 employee jobs. Redundancies have risen by 27,000 on previous quarter and by 175,000 on the year to 286,000. Average earnings were lower by 0.2% in terms of annual growth in quarter to March at 3.0%.

The employment rate for working age people was 73.6% and the number of employed people 29.2million. Manufacturing has suffered with the lowest figures since records began in 1978 at 2.73 million, 160,000 fewer than last year. Productivity decreased by 8% and unit wage costs increased by 9.8% over the year and 3000 days were lost from 13 stoppages.

These figures compare well with other European countries. OECD statistics show France had 8.8% unemployment, Belgium 7.3%, Germany 7.6% and Finland 7.4%.

Producer Prices Up And Down

The producer prices output index went up 2.0% on the year to March compared with 3.0% in February. Month on month the rise was 0.1%. Input prices fell by 0.4% annually but have risen 1% since February. Petroleum products have afllen 17.7% since last year while other product groups in the index have risen. Chemical products and transport the biggest risers. Electrical and optical fell during the month to March by 0.6%. The biggest falls in input prices were the crude oil product group by 36.6% over the year to March while fuels were the biggest risers. Fuels prices fell by 5.7% during March while crude oils gained the most by 7.1%.

Business And Economic Indicators

Business and economic indicators are very useful in monitoring and steering a business or an economy. Indices can be developed to monitor almost anything. Some recent figures from various sources may show how they can help give a sense of direction.

UK retail sales fell 1.2% on a like-for-like basis and 0.6% total compared with March last year. Food sales were slightly up. Non-food non-store sales, a part of total sales and an index that includes Internet sales, were 10.8% up on last year. The timing of Easter made comparisons with March last year difficult because Easter was included in last years March calculations (Interpreted from BRC figures) but will be in April's this year.

The CBI's March survey reported that the majority of retailers said year-on-year sales for March were down but that expectations had been higher. They do not expect any improvement next month.

Manufacturing output decreased by 6.5% in February. The Index is at 90.4, 12.2% down on the same p[eriod last year. Between January and February output decreased by 0.9% from revised figures. Falls were mainly in the car industry, metals and machinery industries (Interpreted from ONS figures).

Producer output prices rose by 2% in the year to March 2009. The Index rose 0.1% from February to March 2009. Excluding food and beverages the rise was 3.3% over the year and 0.2% February to March. Input prices fell 0.4% over the year but rose by 1% from February to March 2009. Input prices excluding food and beverages rose by 7.4% in the year to March and 0.2% February to March (Interpreted from ONS figures).

Consumer confidence is increasing gradually. It is the highest since May 2008 and has risen 5 points to -30 according to NOP. It is still well down on March 2008 by 11 points but the recession hadn't taken hold then. Confidence in the general economic situation is up 7 points to -75 but it is still 32 points down on this time last year. Expectations for the next 12 months have increased by 9 points. Consumers are also more confident about saving than last month but again well down on this time last year (Interpreted from the Consumer Confidence Barometer, NOP/GfK).

The Net Rate of Return of UK companies in private non-financial category for Q4, 2008 was 12.8%. The revised estimate for Q3 was 13.7% or down 0.9%. NRR for manufacturing was 8.5% and services 15.8%. The annual net rate of return for 2008 was 13.8%. It compares with 14.8% of 2007. The Net Rate of Return is an indicator of the profitability of a company (An interpretation of ONS figures).

These indicators can tell us about a business or an economy. They may be accurate, they may not but even if not, that might tell us something about the researchers and/or their methodology.

Noah's Ark

The Government is steering the ship. It has instruments of control to direct the economy in a particular direction. The most important instruments include public spending and taxation decisions to alter the course of the economy. Economic indicators tell us how well a policy is working. Budgetary instruments of control are used to vary the amount of public spending to increase or depress economic activity and to target its spending to try to influence groups or areas.

Earlier administrations have denied that government could control the economy in this way. The most they could do, they said, was create the right free market conditions and competition would do the rest. Governments still do try to steer the economy. It tries to control inflation as all post-war governments have done. The recent recession and government financial support for the banks show that free markets are far from perfect and government intervention is occasionally necessary (Jones et al. 1998).

At the centre of the machine are the Treasury and the Bank of England. There is considerable argument about the extent of their power but they have an important ongoing role in daily strategy and tactics in fiscal and monetary policy (Jones et al. 1998). The Chancellor of the Exchequer has initiated several policy actions in recent months to help cope with the credit crisis, stabilize the economy, control inflation and control unemployment. Macroeconomic objectives also include long-term sustainable economic growth. The Governor of the Bank of England has also used its policy tools to carry out its functions and achieve its objectives (Parkin, Powell and Matthews, 1997).

Recessions begin when investment slows down. If investment is maintained at a modest rate, capital stock grows slowly and the law of diminishing returns works in reverse. Real business cycle theory takes changes in investment demand and demand for labour into consideration. People can decide when to work and how much but must use the real interest rate. If the quantity of money changes, aggregate demand changes. The 'dismal science' says that however much investment and technological change occurs real wage rates are always being pushed back down to subsistence levels. It is the theory on which classical population growth economics is based. The classical growth theory is likewise based on the view that population growth is determined by income levels. Modern growth theories turn the classical theory on its head.

According to the modern growth theory founded by Joseph Schumpeter new technologies are the source of economic progress. In capitalist society it creates turmoil, a process of 'creative destruction' creating new businesses and destroying currently profitable businesses. Rising incomes slow population growth because they increase the opportunity cost of having children. Growth occurs because the technological advancement and productivity growth prospects are unlimited.

Miscalculations of inflation may give an inaccurate measurement of real GDP growth. They probably give a fairly accurate estimation of the phase of the business cycle. Other indicators, such as jobs, correlate. Real GDP figures can overstate the situation because in a recession household production and leisure time are countercyclical and tend to increase. They also tend to understate to long-term growth rate. Impulses will come from future expectations of sales and profits on one hand and an increase in money supply on the other. An unanticipated change in aggregate demand due to fiscal or monetary policy may also bring a change in real GDP (Parkin, Powell and Matthews, 1997). The banks must get things moving again. Economic policy is made up in the process of execution and relies on private bodies like banks. The economy cannot work without banks circulating notes and coins, processing cheques and acting as financial intermediaries to businesses (Jones et al, 1998).

This Way To The Trough

Economics analysts try to understand the economic world and then devise policies to try to improve it. Economic policy makers try to predict the outcome of alternative economic policies and evaluate them on a scale of better to worse by stating policy objectives and analysing policy outcomes according to political sentiments. An objective and scientific evaluation can be made of economic policy objectives such as efficiency, stability, growth and equity. Economic growth, in terms of incomes and productivity, is one of the main objectives of economic policy. Even in times of recession, economic performance is measured as a decrease in real GDP, or negative economic growth.

Growth transforms poor societies into rich ones but it has costs. The costs of growth are that in doing so it uses up exhaustible natural resources and might damage the environment. Two key factors that influence growth are technological advancement and capital accumulation. Devoting resources to one thing means they are not being devoted to anything else. There is always an opportunity cost. If resources are being used to discover new technologies and new forms of capital, they cannot be used to increase consumption goods and services or on current environmental concerns.

Growth can be measured in terms of the increase in real GDP. The periodic but irregular movement of economic activity we call the business cycle measures fluctuations of real GDP around potential GDP, the real GDP that could be produced if resources were fully employed. The economy has officially entered a recession and will eventually reach a 'trough' or turning point at which it will enter another phase of expansion. It is considered severe at the moment but is not expected to be as severe as a depression. Recessions are unpredictable as are animal spirits. One of the government's problems is closing the recessionary gap (Parkin, Powell and Matthews, 1997).

The current recession could be said to have global proportions. Globalisation means that process by which the production and marketing of products is becoming more integrated and interdependent (Harrison, Dalkiran and Elsey, 2000). As a result of this global economic interdependence the effects of the 'credit crisis' are being felt all over the world. The problem for the international institutions is that there is no model in finance, economics or international business theory that can explain or predict capital flows. The international institutions themselves may be out of date for the problems of the global environment. GATT has been replaced by WTO. The IMF was designed for a system that no longer exists. Internationally agreed policies may be required to curb the trend toward greater deregulation and international financial anarchy (Dawes, 1995).

Growth and population are often related. Rapid economic growth may be linked to rapid population growth. Real GDP per person is a measure of real GDP divided by population and can be used to compare growth rates across countries and over time. There may be similar features in productivity growth figures, business cycles and long-term trends in potential GDP in countries like the major OECD countries.

Long-term economic growth means expanded consumption possibilities, a better environment, pensions, welfare and more support for the poor and disadvantaged. When the rate slows the opposite effects and losses are felt. There is a relationship between the long-term growth rate and welfare and usually a trade-off between spending on welfare and on the productive sectors of the economy that generate growth. One of the biggest problems of macroeconomics is finding a balance of resource allocation between the two rival claims (Parkin, Powell and Matthews, 1997).

The scarcity of resources means that a frontier exists between what is attainable and unattainable in terms of production possibilities. Inward shifts along the frontier reduce our production possibilities and outward shifts expand the possibilities and resources are decreased and increased. Firms reduce production and prices for short-run equilibrium to eventually restore long-run equilibrium or they wouldn't be able to sell their products and customers buy what they need. Consumers may in fact be worried about their incomes and cut spending which would in turn leads to job losses, falling investment and a deepening of the recession. Consumer efficiency occurs when utility cannot be increased by reallocating their budgets. They should budget as wisely as ever for utility, preferences, indifference, substitutes and prices they can afford.

We can only continue to analyse the economic world, gain a greater understanding of how it works and devise institutions to that might improve economic performance. One thing is pretty sure, all the questions and answers will arise from scarcity (Parkin, Powell and Matthews, 1997).