Quarterly Bulletin
Business Cycles Articles
| Summer 2006 | Investing in inventories  (268k)(By Rob Elder and John Tsoukalas of the Bank's Structural Economic Analysis Division). As well as investing in capital, firms invest in inventories or stocks. For some businesses, investing in stocks is crucial for their profitability. Shops are better able to attract consumers if their shelves are full and they can offer a wide variety of products. Manufacturers are more likely to win contracts if their customers can trust them to cope with sudden swings in their orders by holding sufficient stocks. Nevertheless, investment in stocks is actually a very small proportion of total spending in the United Kingdom. On average between 2000 and 2005 it was just 0.4% of GDP. But it is volatile. For example, annual GDP growth slowed from 3.1% in 2004 to 1.8% in 2005. Weaker investment in stocks can account for 0.4 percentage points (or a third) of that slowdown. This article examines firms' motives for investing in inventories in order to understand the role it plays in swings in whole-economy output. |
| Autumn 2003 | The
information content of regional house prices: can they be
used to improve national house price forecasts?
(104k) (by Rob Wood of the Bank's Structural Economic Analysis Division). It is often suggested that house price movements in the South East lead, or even cause, movements in the rest of the United Kingdom. If this were the case then house price inflation in the South East would be useful when forecasting national house price inflation. There are plausible channels through which such a 'ripple effect' could operate. But tests for patterns of regional price changes consistent with the effect give mixed results. There is evidence that regional price changes were consistent with the South East playing a leading role in the late 1980s/early 1990s, but not during other periods. So it is important to understand the nature of the shock to the housing market before concluding that a given house price change in London and the South East has implications for house prices in other regions. |
| Summer 2003 | Assessing
the extent of labour hoarding
(103k) (by Guillermo Felices of the Bank's Structural Economic Analysis Division). The strength of employment during the recent slowdown is sometimes taken as evidence of labour hoarding. But the extent of such hoarding is difficult to measure. This article reviews different definitions of labour hoarding and a variety of ways of measuring it using aggregate data. Most of these measures indicate that labour has been underutilised during the recent slowdown, implying that firms have indeed hoarded labour to some extent. However, the magnitude of the reduction in utilisation differs across these measures. The evidence also suggests that the recent decrease in utilisation has been limited compared with previous episodes in which labour utilisation was significantly below trend. |
| Summer 2002 | Why
are UK imports so cyclical?
(72k) (by Valerie Herzberg, Maria Sebastia-Barriel and Simon Whitaker of the Bank's Structural Economic Analysis Division). The recent economic slowdown in the United Kingdom has been characterised by declines in business investment and exports. The impact on domestic output has been alleviated by robust household spending, but also by a sharp decline in imports of goods and services. This article shows that these divergent trends in the components of demand, and differences in their import content, can help explain the weakness in imports during 2001. More generally, close attention to the relative contribution of the components to aggregate demand can help explain fluctuations in imports. The analysis has been aided by the recent publication of updated information from the ONS on the import content of different expenditure categories. |
| August 1998 |
The UK personal and corporate sectors during the 1980s
and 1990s: a comparison of key financial indicators ICCs’ capital gearing has been above the level of the mid 1980s throughout the current recovery, but so far has shown no signs of the kind of deterioration that occurred after 1987. Similarly, the stock of personal sector debt began this recovery at a higher level than in the early 1980s but, unlike then, has grown no faster than incomes and slower than wealth so far during the 1990s. There are other contrasts between the 1980s and 1990s recoveries. With regard to lending flows, in the 1980s boom, there was a channelling of funds to ICCs and personal housing loans. But in the current recovery, lending has been channelled more towards unsecured consumer credit and to OFIs. With regard to asset prices, in the 1980s, property and equity prices rose markedly in tandem. Although equity prices have again risen strongly in the 1990s, property prices have so far risen slowly in comparison. During the 1980s, the spread of bank and building society mortgage rates over base rate fell only towards the end of the boom and only as a result of a delayed response to the increase in official rates. In contrast, since the early 1990s, lending spreads in the mortgage market have fallen, as they appear to have done in other main lending markets. This may have contributed to the growth in lending during this recovery, but does not necessarily imply an increase in financial risk, so long as the financial status of borrowers has improved. The evolution of the financial position of the personal sector during the 1980s probably reflected a steady response to financial liberalisation from a starting position of sub-optimal debt levels - total personal debt rose much more rapidly than incomes, and at least in line with the rapid growth in personal wealth. Although consumer credit has increased at least as much relative to incomes during the current upswing as in the previous one, it now still accounts for only around one eighth of personal sector debt. As noted above, the relatively slow growth in lending for house purchase so far during this upswing has meant that the personal sector debt/income ratio has remained flat, while the debt/wealth ratio has fallen. This suggests that the upward adjustments in personal sector debt levels that followed the 1980s liberalisation may have been completed before the current recovery. The cyclicality of mark-ups and profit margins: some evidence for manufacturing and services The article aims to extend the existing work by examining whether mark-ups and profit margins are pro-cyclical not only in manufacturing, but also in non-manufacturing industries, particularly retailing. It looks at the cyclicality of mark-ups, using Haskel et al’s extension to Robert Hall’s method of estimating mark-ups. It then looks at the cyclicality of firm profit margins, using Machin and Van Reenen’s model of firm profitability, to see if profit margins are still pro-cyclical even after adjusting for other factors that vary with time. Using these two different approaches and datasets acts as a test on the reliability and robustness of the results. The article presents evidence that both mark-ups and profit margins are pro-cyclical in services as well as in manufacturing. This suggests that price pressures may move in line with the business cycle, increasing during the recovery period and decreasing during recessions. |
