Archive for November, 2009
Monday, November 30th, 2009
I have just come across two interesting articles about pricing. The first one concerns the apple crop in New York State. It seems that New York’s apple orchards are being carpeted with red as unpicked apples drop to the ground. With the best of the crop off to market, growers say this year it’s cheaper to leave leftovers on the trees than to pick them and sell them for juice. This is a good example of what happens when price is below average variable cost. To read the short article click here.
The other article is entitled: Do supermarket prices change from week to week? Written by Colin Ellis of the Bank of England this paper examines the behaviour of supermarket prices in the United Kingdom, using weekly scanner data supplied by Nielsen. A number of stylised facts about pricing behaviour are uncovered.
First, prices change very frequently in supermarkets, with 40% of prices changing each week, and even controlling for ‘temporary’ changes, a quarter of prices change each week. Importantly, there is evidence that focusing on monthly observations, rather than weekly ones, overstates the implied stickiness of prices.
Second, the probability of price changes is not constant over time – all product categories have declining hazard functions.
Third, the range of price changes is very wide, with some very large price cuts and price rises; but despite this, a significant number of price changes are very small.
Fourth, there appears to be little link between the frequency and magnitude of price changes – prices that change less frequently do not tend to change by more.
Fifth, the strongest correlation between price and volume changes is contemporaneous, suggesting that prices and volumes move together from week to week.
And sixth, rough analysis based on simplifying assumptions suggests that consumers are fairly price sensitive: volumes change by more than prices.
There is also a useful section looking at suggested price elasticities for various products. To read the whole article click here.
Tags: average variable cost, price elasticity, Pricing
Posted in Elasticity, Pricing | No Comments »
Tuesday, November 24th, 2009
Posted in Uncategorized | No Comments »
Monday, November 23rd, 2009
Mark Thoma, a macroeconomist at the University of Oregon, has just published an interesting article with this title, for CBS Money Watch.
He notes that this lag in employment has increased substantially in recent recessions from about one quarter before 1990 to more than a year in the last two recessions.
He suggests three factors that might account for the existence of a lag.
Firstly, when firms see an initial upturn in the economy towards the end of a recession, they remain cautious that this may be a “false signal”. This causes them to refrain from taking on new workers straightaway.
Secondly, there has been an increased tendency for firms to retain their best workers during a recession – called labour hoarding – and thus there is no need to hire new workers until the existing ones are working to capacity.
Thirdly, during recession firms that have cut their labour force often find ways of becoming more productive through reorganization. This leads to a situation where the demand for labour on the upside will be smaller than the amount lost on the downside, causing the demand for further workers to be sluggish.
 The demand for labour on the upside will be smaller than the amount lost on the downside.
Why has the time lag increased during recent recessions? Thoma puts this down to the fact that there has been an increase in the workplace of technology and specialized training and expertise. Because of this, firms are now even more reluctant to lay off such specialized wokers during a recession and have increased labour hoarding, which has extended the time until firms require new workers during the recovery.
To read the full article click here.
Tags: Employment, recessions
Posted in Employment, recession | No Comments »
Thursday, November 19th, 2009
What fantastic news, I will be able to get into my Santa suit after all. And, I can just sit back and look forward to the weight falling off me as the result of the government’s new law.
If you think this is far-fetched, it is about as far-fetched as the fiscal responsibility bill highlighted by the government yesterday, in which they plan to pass a law which says that the government budget deficit will be halved within four years. Well that’s good then. Unfortunately, just as I won’t lose weight without cutting the amount I eat and increasing the amount of exercise I do, the government won’t see the budget deficit fall unless they do something. The question is, does it take a law to make them do something? And if they fail to “do something”, who is going to go to prison for breaking the law? You couldn’t make this stuff up.
In fact, the government announced in the April Budget that they planned to reduce borrowing as a percentage of GDP from its current level of 6.4% down to 3.2% by 2014. So why not just get on with it? Why pass a law to this effect when there are no sanctions for failure? Unless it is meant to tie the hands of the next government? Especially since the next government will be a Conservative one. That is, unless Santa really does exist. Perhaps it is a Baldrick-like ‘cunning plan’. The problem is that the Conservatives are probably even keener on getting the budget deficit down than the Labour Party.
 "I don't believe it", says Victor Meldrew. "Neither do I", says Santa.
Did you know that over 3,000 new laws have been introduced over the past decade and that one of them was to make it illegal to detonate a nuclear bomb. Well, I can sleep more easily at night now knowing no-one is going to get away with that one! Surely it would have been covered by ‘aggravated littering’ legislation or even ‘murder’. Just off now to post my membership application form to the Victor Meldrew appreciation society.
Tags: budget deficit, government borrowing
Posted in government borrowing | No Comments »
Wednesday, November 18th, 2009
Minutes of the last meeting of the Monetary Policy Committee (MPC) of the Bank of England have just been published, and show that seven of the nine members agreed that an extra £25bn should be pumped into the economy through the programme of asset purchasing or quantitative easing. This was enough to secure agreement to raise the total spend to £200bn.
However, one member, David Miles thought that this was insufficient and that it should be raised by another £40bn. In contrast, Spencer Dale, the Bank’s chief economist thought that there should be no increase in the scheme. According to the minutes he stress the potential risks of such a policy, noting that monetary policy was already extraordinary stimulatory. He thought that the considerable uncertainty about the degree of spare capacity and the behaviour of inflation when output was growing at above trend meant there were risks from attempting to eliminate the margin of spare capacity more rapidly. He also noted a risk that further substantial injections of liquidity might result in unwarranted increases in some asset prices that could prove costly to rectify, which would complicate the task of meeting the inflation target in future.
 Some dissension over the continued asset purchase scheme. It was also noted that the decline in GDP during the third quarter was a “surprise” to the MPC, and that there were some reasons to anticipate a small upward revision in future data releases. The Committee also noted that output has fallen by almost 6% since its peak in 2008.
Tags: Bank of England, Inflation, MPC, quantitative easing
Posted in Bank of England, Inflation, Monetary Policy Committee | 1 Comment »
Tuesday, November 17th, 2009
The government’s target measure for inflation, CPI, was 1.5% in October, which was a rise of 0.4 percentage points, from the 1.1% recorded in September.
The main reason for the increase was within the transport sector and came from fuels and lubricants. Somewhat perversely, prices of fuels fell by 0.7% between September and October this year. But because they actually fell even more, by 6.1%, between the same two months a year ago, this led to an inflationary increase. There were also other inflationary increases within this category from the prices of second-hand cars and air transport, where fares increased by 1.5% this year.
There were also upward pressures on CPI from recreation and culture, food and non-alcoholic drinks and communication. The largest downward pressure came from miscellaneous goods and services, mainly banking services, due to reductions in overdraft charges and mortgage arrangement fees.
 Source: ONS
In the year to October the Retail Prices Index fell by 0.8% which compares with a fall of 1.4% in the previous month. This means an increase of 0.6% and there has not been a greater month increase since July-August 1990.The factors affecting the CPI also affected the RPI, although because of differing methods used to measure the price of new cars in the two indices, the RPI increased by more than the CPI. There was also an upward pressure from house depreciation as house prices are now increasing but were falling at this stage last year.
Also, RPIX inflation, which is RPI minus mortgage interest payments, was 1.9% in October, compared to 1.3% in September.
The latest comparison with the EU as a whole shows a September CPI inflation figure for the UK of 1.1% but an EU figure of 0.3%.
Last week, Mervyn King, governor of the Bank of England said in his quarterly Inflation Report that: “Inflation is likely to rise towards 3% next year as VAT returns to 17.5% and higher commodity prices feed through, before price increases again subside to 1%.”
Tags: CPI, Inflation, RPI, RPIX
Posted in Consumer Price Index, Inflation | No Comments »
Monday, November 16th, 2009
When firms get involved in price wars it is usually to the disadvantage of the companies concerned – unless they can force rivals out of the market – and to the advantage of consumers who enjoy lower prices. Or can it be more complicated than that?
Recently in the United States, Wal-Mart got involved in a price war on books with Amazon and other distributors. Wal-Mart started by reducing the price of ten best-selling books to $10. Amazon responded and eventually Wal-Mart reduced prices to $8.98, which would normally be below cost, given the wholesale price of books.
The book publishers and other booksellers responded by claiming that such unfounded discounts would undermine the publishing industry.
But why was Wal-Mart prepared to offer a limited range of books as a loss-leader, if in fact that was what it was?
To see an analysis of the implications of the “book wars” have a look at the article “Priced to go” by James Surowiecki which was published in The New Yorker last week and can be accessed by clicking here.
Tags: Price wars
Posted in Pricing | No Comments »
Friday, November 13th, 2009
There was a narrowing of the gender pay gap for all employees in the UK this year of 0.5 percentage points to 22%. The Office for National Statistics measures the gender pay gap by the median hourly pay excluding overtime. When full-time employment is examined, males earned an average of £12.97 an hour before tax compared to £11.39 an hour earned by women. The gender gap between full-time workers also narrowed from 12.6% in 2008 to 12.2% in 2009.
The pay gap for part-time employees, rather perversely, is the other way round as the small number of male part-time workers earn less than the large number of female part-timers. However, this gap also narrowed in the opposite direction from -3.7% to -2.0%.
 The gender pay gap has narrowed and is smallest for those in professional jobs such as banking.
Interestingly, the smallest gap was amongst professional workers, where men earn only 3.8% more than women. The largest gap was in the category of ‘skilled trades’ where the difference in wages was 26.2%.
Tags: Earnings, Gender pay gap
Posted in Earnings, Gender equality, Gender pay gap | No Comments »
Thursday, November 12th, 2009
In the three months to September the number of people unemployed in the UK rose by only 30,000 when compared with the three months to June. This was the lowest increase for 16 months. According to the Office for National Statistics there were 2.46m people out of work in the quarter as measured by the Labour Force Survey. In fact, when we compare the current three month rolling average to that for the previous month, unemployment is actually down by 8.000.
This meant that the unemployment rate remained at 7.8% as it had been in the previous quarter. The highest unemployment rate since the war was in 1984 when it peaked at 11.9% and this reflects the current flexibility of the UK labour market at the present time, given that the current recession is a deeper one. The fact is that 1.4m people are currently working in part-time or temporary positions, even though they would wish to have full-time, permanent work.
The alternative measure of unemployment is of those who are currently out of work and claiming benefit. This figure rose by 12,900 to 1.64m in October which was the smallest increase for 18 months. The previous rise in September had been 20,600.
One figure of major concern is that of youth unemployment. The number of people between 16 and 24 who are out of work has risen by 15,000 to 943,000 compared to the previous quarter, to give a rate of 19.8%. David Cameron taunted the prime minister in the Commons yesterday with this fact, although Gordon Brown detailed a number of initiatives which the government had taken to reduce youth unemployment – all of which he claimed the conservatives had voted against. He also mentioned the fact that a quarter of all those in the youth unemployment group are also in full-time education. The figures regard them as being out of work even if they are only looking for a few hours work in a bar on a Saturday night.
Less encouraging figures relate to long-term unemployment. Whilst the overall rate is slowing the rates for the long-term unemployed are going up. Those out of work for more than a year increased by 13% over the past quarter to reach 618,000. At the same time, those out of work for 6-12 months rose by 12%.
Finally, vacancies only fell by 1,000 in the last quarter and redundancies dropped by 62,000 to 205,000. Some commentators believe that unemployment has already peaked and is now starting to fall.
Tags: redundancies, unemployment, vacancies, youth unemployment
Posted in unemployment | No Comments »
Tuesday, November 10th, 2009
The deficit on UK trade in goods and services seasonally adjusted increased from a deficit of £2.2bn in August, to a deficit of £3.5bn in September.
The deficit on trade in goods alone was £7.2bn compared with a deficit of £6.1bn in August, whereas the surplus on trade in services fell from £3.9bn in August to £3.7bn in September.
When oil and other erratic items are removed, the seasonally adjusted volume of exports was 0.2% lower whilst the volume of imports rose by 4.1% in September, compared with August.
When considering the value of trade rather than the volume, total exports rose by £0.7bn to £19.4bn, which was a rise of 3.9%. However, total imports rose by £1.9bn or 7.5% to total £26.6bn.
 A sharp rise in imports worsened the UK's trade gap in September.
Why did imports increase by such a large amount? Somewhat perversely our imports of cars rose by £432m in September compared with August. This was largely due to the car scrappage allowance whereby the government gives an allowance of £2000 against the purchase of a new car when an old car is scrapped. Unfortunately, the major impact of this last month was to draw in imported cars to meet the demand. Thus our imports of cars increased by 30% on the previous month, as a result of government incentives.
On top of this there were substantial increases in our imports of intermediate goods, chemicals and aircraft.
Tags: Balance of Trade, exports, imports
Posted in Balance of Trade | No Comments »
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