Sunday, 8 August 2010

Sinking Economy

The Credit Crunch has had its casualties, around 2.5 million unemployed (Labour force survey) but here is a quick case study of an industry hit hard.
The kitchen industry saw quite large growth during the resent boom of the 2000s, being an luxury product the consumption of designer kitchens is linked with peoples incomes, high income elasticity. As as soon as the economy goes into decline peoples confidence falls and as a result they cut back on luxuries. One of the first industries to bit hit hard by this was the of course the kitchen industry, it easy to cut back on the new kitchen you were planning.
I happen to know a kitchen fitter who was made redundant from three kitchen firms then finally ended up long term unemployed. GDP has now moved up to 1.1% thus the UK is in recovery. low and behold as basic economic theory suggest, he now has his job back.
A clear sign that things are picking up, although as a possible double dip looms it could be worst times ahead for luxury industries.

Bonus fact: "A zero income elasticity (or inelastic) demand occurs when an increase in income is not associated with a change in the demand of a good. These would be sticky goods." - wikipedia

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