The darkest hour

<p>It is the hour before dawn. This phrase has been heard a lot around the City of late. The flow of bad economic news has been unrelenting, and finance ministers around the world are in danger of running out of fingers and thumbs with which to plug holes in the dyke.</p>
<p>In my view the biggest wave yet to hit UK consumer spending is that of rising unemployment, with perhaps 8% of the workforce out of work by Christmas. I sit at the nexus of retail and finance, and both industries, particularly finance, have seen lay-offs over the past year. However, it is only now that the rest of UK industry is shedding labour on any scale. And if we recall that more than half the UK&rsquo;s workforce is directly or indirectly employed by the state, the shift in the outlook for private sector employment is startling. As far as consumer spending is concerned, unemployment is a contagious disease. A consumer&rsquo;s attitude to spending is affected not just by his own redundancy, but also if a close friend or relative has lost their job. This effect will become more noticeable as 2009 develops.</p>
<p>There is the prospect of some palliatives: household fuel bills should begin to fall (but currently gas bills are up 52% year on year, and electricity 32%, so there is plenty of scope for a fall). Mortgage interest payments have tumbled&mdash;but not as much as you might imagine&mdash;from the base rate headlines (being down just 28% currently). So over-indebted borrowers are being assisted. The less discussed flip side of this coin is that savers have taken a savage beating. Essentially there is a generational shift of income taking place with younger consumers benefiting to the detriment of the elderly.</p>
<p>What does all this mean for the book market? I would like to side with those who endorse its defensive merits. Books remain a low ticket purchase. Further recession/depression should stimulate &ldquo;cocooning&rdquo;&mdash;how Nineties that word now sounds. Buying a new book and indulging in home cooking have strong financial benefits against a night on the town.</p>
<p>Older book buyers will be carrying lighter purses. Clearly the industry&rsquo;s further lurch towards heavier discounting last Christmas is not going to be redressed in a hurry. A focus on price and value will become more embedded across retailing.</p>
<p>The only candle I can light in this gloom is ironically to point to the financial markets themselves. They have stopped being that sensitive to hapless economic data. Perhaps they are numbed. But markets are usually quite good at anticipating upturns, and some now believe that the darkest hour has come.</p>