The annual new year deluge of forecasts for the economy offered little room for doubt that 2008 will be difficult for businesses and consumers alike. But the CBI’s Richard Lambert warned against exaggerating the risks and talking ourselves into something much worse than the soft landing he thought likely.
Nonetheless, strong management skills will be needed to navigate the seas ahead. That applies particularly to the timber industry, which is set to face more hazards than most as the housing and household goods markets suffer the fallout from the credit crunch. High street demand in December was the lowest for three years, says the British Retail Consortium, with like-for-like sales down 0.3% on the year. The market for furniture was “well below” 2006 levels despite heavy discounts. Official figures confirm the downturn, with the value of furniture sales 4.4% lower than in December 2006 and volumes down 4.7%.
The outlook for furniture plunged further as 2007 ended. The GfK NOP index of the climate among consumers for major purchases dipped two points in November and a further seven points in December, taking it to its weakest level since June 1991. Weakening consumer confidence also impacts strongly on demand for housing which, as shown by market prices, continues to decline. Average prices are dropping at rates not seen since the housing recession of the 1990s, the Royal Institution of Chartered Surveyors warns.
Manufacturing output
On the supply side of the economy, total factory output in the three months to November was almost unchanged on a year earlier, but output of wood and wood products other than furniture was 3.7% higher.
Survey evidence from the construction industry points to a reduction in activity in the residential sector. In the commercial property sector, agent Savills says that activity fell in December at the sharpest rate since its survey began in March 2003. Expectations of future activity also dropped to a record low.
Official figures show that the volume of new construction orders placed in the three months to November was 5% higher than a year earlier. But private-sector housing orders fell by 10% and public-sector housing orders were down by 9% year on year.
Taylor Wimpey – the UK’s largest housebuilder – reported a 19% drop in its UK order book in its year-end trading statement. Persimmon said forward sales at the start of 2008 were 14% lower than last year. Total construction output is expected to grow by just over 1% this year compared with 2.6% in 2007. And annual growth will remain at around 1% per year until 2012, according to forecasts from the Construction Products Association.
Unemployment
Unemployment – another strong driver of consumer confidence – eased last autumn, government figures show, but the labour market lags behind changes in economic activity and its strength is expected to fade as growth slows.
In December permanent placements rose at the slowest rate for four-and-a-half years according to a business survey of employers and recruitment consultancies.
Inflationary pressures continue to be felt across the economy. Factory gate prices rose overall by 5% in the year to December, up from 4.7% in November. But for other wood and wood products, the annual increase was 9.4%, compared with 10% in November. The industry’s raw material and fuel costs rose by 9.8%, up from 9.7% in November, keeping the screw tightly down on margins.
Consumer inflation was unchanged at 2.1% in December on the government’s preferred measure – the Consumer Price Index. But the Retail Price Index, which adds housing costs, stood at 4%. Furniture continued on its volatile path with a yearly price fall of 0.4%, following annual increases of more than 4% in each of the three previous months.
