Even before the terrorist atrocities, the US was on the edge of recession and the idea that the UK could avoid the worst repercussions of the downturn appeared increasingly unrealistic. Now all bets are off that any of the world’s industrialised nations can escape the serious economic consequences of the attacks.

Although no economic model exists that can forecast exactly what these effects will be, they will clearly depend on how deeply business and consumer confidence is damaged – and that won’t be known with any certainty for several months.

But it was already evident that any significant weakening of Britain’s labour market would quickly undermine consumer confidence and slam the brakes on household spending – which had been keeping the economy afloat and bolstering the housing market.

And signs of a downturn in employment growth have begun to emerge. Permanent staff placements fell for the third consecutive month in August, according to the Recruitment & Employment Confederation, and the rate of decline was the fastest since its survey began in October 1997.

There is also the first indication from official sources that unemployment is on the rise. The number of people seeking work but unable to find it increased by 13,000 in the three months to July. A slowdown in earnings growth in the private sector – notably in services – depressed the size of pay packets across the whole economy. In the three months to July it eased to 4.6% compared with a year before.

The labour market traditionally lags behind changes in output, so what signs are there of the upturn that was widely predicted at the start of the year? The answer: very few. Overall manufacturing output is falling at the fastest rate for a decade. Output of veneer sheets and plywood in July was 15% down on a year ago, although annual growth in sawmilling, builders’ carpentry and joinery, and kitchen furniture production held up well.

Purchasing managers in the construction industry report continued strong growth in August, but the pace of expansion has slowed. Activity in the housing and commercial sectors remained strong but growth in civil engineering is described as ‘negligible’. The index of activity was driven mainly by a rise on new orders, albeit the increase was the weakest since November 2000.

Government figures suggest that the three months to July were a lacklustre period for new orders. New private house-building orders were down 1% in volume on the previous three months while orders for commercial projects were down 3%, industrial orders fell 1%, and new infrastructure work slumped by 30%.

In the high street, the CBI and the British Retail Consortium say that August sales were buoyant. However, the CBI expects volume growth to moderate in September and the latter adds that growth in the value of like-for-like sales eased from 6.1% to 5.6%.

The BRC’s director-general, Bill Moyes, comments that although ‘the picture is patchy… and consumer demand remains fragile… furniture enjoyed a fantastic summer sale’. Further back in the supply chain, orders placed by wholesalers with their suppliers continued to fall in August and stock levels were run down strongly, according to the CBI.

Survey evidence suggests that pressure on prices remains intense and is increasingly the focus of competition in many retail sectors.

Figures from National Statistics show a 1.5% rise in the retail price of furniture during August, up from 1% in the year to July. Strong price recoveries are reported on living room furniture and there was less discounting on bedside cabinets and kitchen base units than in August 2000. Offsetting these upward price pressures were special offers on some items of bedroom and dining room furniture.

Official estimates of factory gate prices point to an overall rise of 0.3% in the year to August, with wood and wood products just 0.1% higher than a year earlier. Raw materials and fuel bought by wood and wood product manufacturers fell by 0.5% over the year, compared with a 2.3% drop for manufacturing as a whole.
Related Files
Manufacturing Output
Builders’ Joinery and Veneer Output
Builders’ Carpentry & Joinery Wooden Container Prices
Wooden Furniture Output
Wood & Wood Product, Costs & Prices
Furniure Costs and Prices
Housing Starts and Completions
New Construction Orders