So much for the resolutionsJessica IrvineJanuary 14, 2009My...

So much for the resolutions
Jessica Irvine
January 14, 2009

My resolution to have a more optimistic outlook for the Australian economy lasted fewer than two weeks.

The Reserve Bank governor, Glenn Stevens, said we should have quiet confidence in our abilities and not talk ourselves into unnecessary economic weakness. So with those upbeat sentiments ringing in my ears, I went on a five-day family holiday to a deserted caravan park in the Flinders Ranges.

With no television, radio or newspapers, we sat around reading, avoiding the heat in our air-conditioned cabin. And as I melted away into A Year In Provence, I pondered the possibility that the global financial crisis was an over-hyped bad dream and, after a few days of festive rest, we may all return ready to get on with business as usual.

But no. It took only a few days back at work to knock me out of my reverie. So far this year - all two weeks of it - the stream of bad news has been relentless.

Sales of new cars plummeted in the second half of last year, industry figures revealing that fewer cars were sold last year than the year before.

In construction, approvals to build homes suffered their sharpest fall in eight years, those for freestanding homes in NSW falling to their lowest, yet again, since World War II.

Despite the Federal Government's announcement that $10.4 billion of taxpayer money would be poured back into the economy to help kick-start activity, retail sales in the lead-up to the busy December period were sluggish at best, growing only 0.4 per cent in November. Annual growth in sales is down to 2 per cent, from 8 per cent a year ago.

On Monday we learnt that as companies shut for the summer holidays, the number of job advertisements in newspapers was shrinking at a faster annual rate than during the early 1990s recession we "had to have". They are down 52 per cent over the year. ANZ economists who survey the job ads said the fall was historically consistent with a recession in the coming nine months.

More dismal news is expected tomorrow. The government jobs report is expected to confirm yet another slight, but inexorable, rise in unemployment to about 4.5 per cent - the highest in nearly two years.

Rising joblessness is the expected catalyst for a fresh wave of woes, dampening consumer spending even further. Expect to hear a lot more from the Federal Government about new spending programs to protect jobs.

But the straw that broke the back of my resolution to be cheery was the increasingly shrill commentary from retailers. Most disturbing are those telling shoppers to "get in quick" before they are forced to pass on huge price rises resulting from the fall in the Australian dollar, which has made imports more expensive.

It is a sign of desperation. To quote Darryl Kerrigan: "Tell 'em they're dreamin'."

The Australian dollar has sunk from nearly $US1 in July to about US70 cents now, but retailers know they cannot just set prices on a cost-plus basis - arriving at a sale price by bundling together their costs and adding a healthy profit margin on top. They can charge only what the market can bear, and at the moment, with consumers worried about losing their jobs, that is not much.

That has not stopped the threats that if you do not rush to to buy a flat-screen TV the next thing you know prices will be up 30 per cent. It smacks of an increasingly desperate scare tactic to get us to shop up big now, suggesting the Christmas and new year's sales period has not been as rosy as retail industry groups would have you believe.

It also suggests that the stimulus from the Government's $8.7 billion in cash bonuses for pensioners and families may already be waning. It is concerning given that consumer spending makes up about 60 per cent of the economy.

So, tighten your seatbelts, folks, because this is shaping up as the year in which the economic slowdown hits home. So far the corporate catastrophes have played out behind closed doors but they are about to spill onto the streets.

Expect to see more "for sale" signs in front yards near you, with laid off workers forced to sell. Watch as shopkeepers remove the "help wanted" signs from their windows, with some replaced by repossession notices.

Marvel as it becomes easier to get a seat at your local restaurant, but renting the latest DVD on Saturday night becomes trickier as more people opt to stay in.

For NSW residents much of this is already a familiar story. Those looking for a silver lining may find some comfort in the fact that 2009 is likely to be the year when the rest of Australia catches up with the sick state. When you are already at the bottom of the heap there is nowhere else to go.

But for the resources states of Western Australia and Queensland, the bigger they come the faster they fall. The West Australian economy is already sagging, as mining companies rein in investment plans, while job ads and house prices retreat at the fastest rate of all states.

February is shaping up as the crunch month for the economy, as summer sales finish and businesses return from holidays to seriously reassess their staff levels and investment plans.

Australia may, by some stroke of luck, still avoid a technical recession this year - two consecutive quarters of negative growth - but with the jobs market about to hit the wall, it is certainly going to feel like one.

Some new year's resolutions were never meant to be kept.