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AMID THE MANY SIGNS OF A MAJOR SLOWDOWN, IT PAYS TO SWIM TO STAY AFLOAT – A major slowdown hits every part of the economy, but for some businesses the news isn’t all bad

Posted by Gilmour Poincaree on November 22, 2008

November 22, 2008

RUTH WILLIAMS by Ruth Williams, with Ari Sharp

ROSS Amott knows when an economic slowdown is building — and he’s MONEY LANEseen plenty of them. At 66, Amott has spent more than 50 years manning his family’s butcher’s stall at Queen Victoria Market. His father worked there during the Great Depression.

Whenever the wider economy starts to sour, the Amott family’s business picks up. “At the moment our turnover is really good, it’s up,” Amott says. “Market people work on higher turnover and lower profit; we survive by having a big turnover. During normal times people get lazy, they think it’s easy enough to head down to the supermarket, but when times change, they all of a sudden get off their backsides and make the effort to come in.”

Plus, if people cut back on eating out, they need to buy more food to cook and eat at home. Yet Amott hasn’t noticed a trend towards cheaper cuts of meat — apparently people are willing to forgo a lot of things, but not yet their favourite steak.

It may come to that, though. In recent weeks, Australia’s confidence in its ability to escape major economic pain has been crushed like a can. Australian shares have more than halved in value since their peak last year, the ANZ job ads index plunged 5.9 per cent last month, and national house prices, as measured by the Australian Bureau of Statistics, dropped 1.8 per cent in September.

Right now, employment remains solid and, according to official forecasts, the Australian economy will cling to positive growth in the next 12 months. But some economists, including JPMorgan’s Stephen Walters, believe Australia may already be in a recession. Others expect us to follow the rest of the rich world, if not into a recession, then something just slightly removed.

For his part, Reserve Bank governor Glenn Stevens told a dinner in Melbourne this week that “the economy will probably now experience a more significant slowing than was otherwise going to occur”, before noting, in typical central banker parlance, that this was “barely detectable yet in some of the key official data sets”.

Clearly, the level of business at Ross Amott’s meat stall is not a “key official data set”. Nor are the increasingly common empty tables at business lunch spots in Melbourne, or the much-reported scaling back of corporate Christmas festivities this year.

Behind the official statistics and the obvious and terrible effects of a major slowdown — company collapses, multiple job losses, government intervention and the like — there are millions of other adjustments in the economy, some large, some tiny, but all of consequence.

Stevens warned this week that the “biggest mistake” Australia could make would be to talk ourselves into “unnecessary economic weakness”. But the slowdown is already flowing through in many ways; some that are unexpected, some that are positive, and some that are anticipated with dread.

But how to capture and measure the adjustments? What are we seeing already, and what are we likely to see?

Theoretically, a way of measuring and predicting consumer spending is CREDIT CRUNCHthe information consumers are seeking. According to a crunch of online search terms provided by Sensis for last month, substantially more people searched for real estate valuers, resume and employment services, financial planners and child-care centres than a year ago. And fewer people were interested in video games and currency exchange.

The lack of interest in currency exchange makes sense, with the dollar wallowing below US65¢, and barely staying above US61¢ yesterday.

Overseas travel is expected to be hit hard by the slowdown — witness the desperate moves by Qantas this week offering 2-for-1 flights to destinations around the world. Travel companies running tours to Antarctica said customers were abandoning $2000 deposits just weeks ahead of departure dates on trips costing between $5000 and $10,000.

Yet some results are baffling — a warning, perhaps, about reading too much into statistics. According to Yellow Pages figures, there was a huge surge in inquiries about beauty salons in October — a surge of almost 350 per cent on last year.

And another category scored even higher — swimming pool construction. Yes, in October — a month in which a string of companies announced staff cuts and the sharemarket dropped through the floor — there was an annual jump of more than 400 per cent in people typing “swimming pool construction” into the online Yellow Pages.

That doesn’t make sense, does it? “When I think about it, it doesn’t surprise me,” says Brendan Watkins, managing director of the Swimming Pool & Spa Association of Victoria. He has no hard evidence to explain the rise, but believes there may be more at work than the low dollar deterring would-be overseas travellers, and the fact that it’s getting, well, hotter.

“People are tending to stay at home and enjoy their homes,” he says.

“We hear, anecdotally, a lot of stories that people tend to have a protective, siege mentality — that with the economic climate the response has been for people tending not to sell their homes but to renovate, dig in and do their homes up.”

Paul Rees-Jones, director of strategy at advertising agency Clemenger BBDO, also uses the words “siege mentality” to describe the current mindset of the Australian consumer. The advertising industry’s stock in trade is knowing the thinking of shoppers, and right now, Rees-Jones says, they are delaying purchases, justifying their purchases on a “different level”, and planning purchases carefully.

According to Clemenger research, consumers are buying more beer and less high-end wine, choosing white bread and more expensive razors. “They are delaying those big-ticket items and fulfilling that need to consume in different ways,” he says.

What happens to advertising during an economic slowdown — what kind of ads will we see, and how will they convince hesitant consumers to buy?

“The tone is crucial,” Rees-Jones says. “You have to make your brand useful. (The ad) should have lightness with a serious undertone, it can’t be frivolous.”

He’s not surprised at the rise in business at fresh-food markets. People are wanting to be around other people right now, he says, wanting to see that life still goes on.

IT’S true that for some people hit by the slowing economy, home becomes less a retreat and more a place to escape from. Unemployment results in more than just lost income — an inbox worth of contacts and acquaintances, as well as a reason to get out of bed, also vanish overnight.

Victoria’s public libraries are expecting increased patronage as the economic outlook worsens. The appeal lies not only in the free hire of books and DVDs, says Debra Rosenfeldt, manager public libraries at State Library Victoria. There’s also the free internet access and newspapers — handy for job hunting — and the word processing essential for job applications.

But the chance to be out in public, among people, without being hassled to spend money can be just as important, Rosenfeldt says. “Public libraries have a very strong role and ability to reach out to people in the community who are disadvantaged.

“If, as we expect, unemployment numbers increase and people find themselves in financial crisis, you would expect them to make greater use of public libraries.”

If any group has borne the brunt of the economic pain so far, it’s probably seniors. The sharemarket has halved in value, taking superannuation funds and modest portfolios with it, and a host of fund managers have frozen redemptions out of mortgage funds — a form of investment once popular with retirees.

Centrelink has seen a rise in claims for the age pension since early October, says general manager Hank Jongen. “There has also been a general increase in calls and face-to-face inquiries Centrelink has received,” he says.

Psychiatrists are bracing for a rise in patients presenting with depression, anxiety and other mental health issues.

Ken Kirkby, president of the Royal Australian and New Zealand College of Psychiatrists, points to “retirees whose super funds have gone down dramatically in value” as among those most at risk.

“What we are seeing now is the potential for much more widespread hardship and pain across the community,” Professor Kirkby says.

At times like this, it’s easy to forget that markets are simple gauges of human confidence, and that economies are simply constructions of millions of transactions between people. They do not have lives of their own, but reflect our lives — our gains and losses, our jobs and homes, our pessimism and our confidence.

When it comes to tracking an economic slowdown, economists can look to a plethora of official statistics from the likes of the Australian Bureau of Statistics, the Reserve Bank and others, coldly recording everything from job advertisements and retail sales, to house prices and share prices.

And there have been some unorthodox attempts to capture the economic climate, in the US at least. The R-word Index, created by The Economist magazine, is based on the number of stories published in The Washington Post and The New York Times containing the word “recession”.

And there is the Lipstick Index, an oft-cited piece of fluffery, suggesting lipstick sales surge during times of economic pain.

If the Lipstick Index is allowed to exist, then perhaps the “market trolley index” should also be tracked. For not only is business strong at Ross Amott’s butcher’s stall, but the Preston Markets are also reporting a “noticeable increase” in trade over the past few months. And overall pedestrian traffic at Queen Victoria Market is up between 5 per cent and 10 per cent on the same time last year, according to chief executive Jennifer Hibbs.

Ross Amott hasn’t seen it yet this time around, but he knows things are getting worse when people stop buying eye fillet, and start fishing out the dusty old cookbooks, the “retro” ones that explain how to tastily cook a cheap cut.

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE AGE’ (Australia)

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