No double dip but first quarter household income saw largest quarterly fall since 1987 says JP Morgan

27th June 2013

The Office for National Statistics revised GDP data for the first quarter of 2013 has growth unrevised at 0.3% quarter on quarter, but the report also shows that real household disposable income fell by the largest amount in 25 years. The recession was deeper than previously estimated as J.P. Morgan Asset Management Global Market Strategist David Lebovitz points out in a note issued this week.

J.P Morgan makes the following points

Lebovitz adds: “Although the UK economy is beginning to show some signs of strength, achieving stronger growth will be an uphill battle. Inflation continues to outpace wage growth, which, coupled with government spending cuts, will drag on economic growth in the coming quarters.

“The Bank of England is holding the first policy meeting led by new governor Mark Carney on Wednesday and Thursday next week, and it seems clear that additional easing from the central bank is needed to support the recovery and may come later in the year.”

5 thoughts on “No double dip but first quarter household income saw largest quarterly fall since 1987 says JP Morgan”

  1. David Lilley says:

    The big issue is that if you cease to be an economic partner you become an economic enemy.

    An independent Scottland wouldn’t default on its share of the UK National Debt despite all the threats to do so. It wouldn’t introduce itself to the world as a debt defaulter.

    It would loose two large subsidies by choice. It would loose the Scottish settlement that Wales can only dream of and it would loose the public sector pensions subsidy. One in four Scottish workers works in the public sector v one in five for the UK. Their unfunded public sector pensions liability may dwarf their proportion of the UK National Debt.

    If they sought to attract inward investment by reducing corporation tax they would have competition from England and its remaining partners.

    1. therrawbuzzin says:

      An independent Scottland wouldn’t default on its share of the UK National Debt despite all the threats to do so. It wouldn’t introduce itself to the world as a debt defaulter.

      ________________________________

      The day of the speech in Edinburgh, where Gideot said “Walk away from the UK, walk away from the pound.” he also claimed title to ALL UK debt, in ALL circumstances.

      Scotland CANNOT default on someone else’s debt.

      ———————————————————————————-

      It would loose two large subsidies by choice. It would loose the Scottish settlement that Wales can only dream of and it would loose the public sector pensions subsidy. One in four Scottish workers works in the public sector v one in five for the UK. Their unfunded public sector pensions liability may dwarf their proportion of the UK National Debt.

      ________________________________________________

      Scotland pays more INTO the UK in taxes than it gets back, FAR MORE.

      The public sector pensions issue has already been agreed.

      ————————————————————————————–

      If they sought to attract inward investment by reducing corporation tax they would have competition from England and its remaining partners.

      ______________________________
      Marginal, in terms of inward investment.
      Firms want a well educated, highly skilled populace from which to recruit.

  2. Noo 2 Economics says:

    Income is important to people with little or no income e.g. a retired person or a younger person whom for whatever reason has little chance of obtaining employment but who has a large capital sum. They need the income/yield generated from their investment each year to live on or to help them live.

    A younger person on good pay with reasonable job security can afford to take a growth approach as they don’t need access to any of their investment in the medium term.

    Some growth investors prefer to construct an income portfolio consisting of good yielding equities and bonds allowing the dividend/yield to be re-invested back into more income equities and bonds, as when a share is bid up 10% you are 10% better off, but if shares in a company you have been rolling dividend payments into go up 10% then, assuming your dividends have purchased an extra 5% of shares then your return is 10.5% (100 shares + 5 shares = 105 shares x 10%). In this way you can find that your portfolio outperforms the Ftse as it’s performance is based purely on share values and assumes all dividends are taken as cash and not re-invested.

  3. David Lilley says:

    Noo,
    We meet again.
    I’m sorry but you are perfectly correct in your explanation but at the same time totally incorrect.
    Return on capital is the only metric. If you invest £100 in high yield or low yield the winner is the one that has the best return whether it is due to share price growth or share price growth plus dividend. You can take income from dividend or by selling shares. It is immaterial whether the stock is high yield or low.
    A high yield company is basically saying “we have made a profit and we will give it to our owners in the form of dividend”. A low yield company is basically saying “we have made a profit but we prefer to reinvest that in the business and not pay dividend because that is the best opportunity cost for your money”. “You will get a better return on your capital as the company grows and the share price grows”.
    Where is your £100 in one year’s time is the only metric.

  4. Noo 2 Economics says:

    Hallo David, I thought my previous example addressed this.

    You have 1 growth investor (A) who receives no dividend as the company he invests in re invests all profits and 1 growth investor(B) investing in dividend yielding shares and who re-invests those dividends. Both start with 100 £1.00 shares each.

    Over a year the companies of both investments make identical profits (this is an example and not real life) and as a result both shares increase by 10%, but B’s shares have paid a 5% dividend which was re-invested so B now has 105 £1.00 shares(based on the assumption the share price had not moved at time of re -investment of dividend which of course is the situation in the real world – share price may be less or more than £1.00) which then increase by 10% – £105.00 x 10% = £115.50 whereas A’s shares have increased by £10.00 – £100.00 x 10% =£110.00.

    My point is exactly yours -what is your original £100.00 worth at the end of the year?

    A further interesting phenomenon arises in the case of a market fall of 10% following a 10% increase. A’s shares fall 10% to £99.00 £110.00 – (£110.00x 10% = £11.00) = £99.00 whilst B’s shares fall 10% to £103.95 £115.50 – (£115.50 x 10% = £11.55) = £103.95.

    The gamble the growth investor takes is that as all profits are re – invested the increase in share price will outstrip the income share as some profits are paid out as income on the income shares and long term profit re-investment will be significantly less and therefore returns will be less than wit a pure growth share.

    The gamble the Growth and income investor takes is that as the market has a tangible view of the value of an income share (the declared dividend) it will likely accord the same or more value to the income share as there is more certainty around it’s value.

    So there is no “correct” or “incorrect” answer, you simply pays your money and makes your choice (or gamble). There is one fact that the average performance of the IMA income sector outperforms the average of IMA growth sector over the medium and long term and in the short term in times of market stress.

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