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Business battles long-term memory loss

John Cavill isn't the only business person who thinks conditions are the worst in 36 years, or 30 years or their lifetime or “ever” - which makes one wonder what they were doing the last time Australia had a recession or whether Australia is suffering a long-term memory loss epidemic.

Retail conditions are not good and in some areas are bad, but this is not 1990-91 when we were suffering a serious and nasty recession brought on by interest rates in the high teens and featuring double-digit unemployment and a less generous social security safety net.

Going back 36 years would include the early 80s recession which wasn't much fun either.

The most recent Australian Bureau of Statistics retail sales numbers are getting a little old (February) but doing a previous-corresponding-period comparison for the latest three months shows retail sales on the trend measure were still up by a few per cent, roughly the inflation rate and a bit better.

Of course large parts of retail have been seeing deflation, rather than inflation, meaning there's actually more stuff being sold than current price sales figures indicate.

A quick look at retail sales performance in constant dollars for the three quarters to June 1991 shows falls of 1.7, 1.3 and 2.2 per cent on the previous corresponding quarters - inflation was keeping the turnover figures modestly positive, but the game was going backwards, just like the overall economy.

The level of business failures left the current softening in the shade. And for some broader anecdotal perspective, Mike Carlton nailed it in his Saturday column:

“The department stores that once studded the Sydney CBD are long gone. Grace Bros, Anthony Horderns, Farmers, McDowells, Waltons, Bebarfalds and Mark Foys vanished with the rise of the suburban shopping mall and the likes of Harvey Norman. Now, in his turn, the writing is on the wall for Gerry Harvey because Tim Berners-Lee created the internet and Jeff Bezos came up with It's called progress.”

Not so bad

I'm not sure that Harvey-Norman is for the jump just yet, but you get the drift. Collectively, the business chatter in general and retail in particular seems to be suffering from the opposite of the Pythonesque “live in lake, get up before going to bed” syndrome – we're working hard to convince ourselves that we live in the worst of times when the hard statistics tell us that simply isn't true.

We have a marked tendency to have a distorted view of “the good old days”.

Just in the relatively short term, four years, we manage to forget the pain of the bubble we were in before the GFC hit and only remember the froth.

An example I like to use is to ask a room to guess what the headline bank standard variable home loan interest rate was in August 2008 - very, very few can recall that it was 9.6 per cent, more than 300 points above what is actually being paid for the average mortgage today.

Which is one of the more interesting things to contemplate about tomorrow's interest rate cut by the Reserve Bank: people's perception of it, rather than the actual number of basis points.

Even if the banks pass on the full 25 points, its impact on the average household doesn't add up to a lot. (For a start only about a third of us have a mortgage anyway.) And if the RBA went the big 50 points, that could send a dubious signal about the economy, a suggestion that we are in deeper trouble than the numbers tell us.

Perception is often more important than reality in the confidence business. That's why the rhetoric of the governor's brief statement tomorrow afternoon might matter more than the number of points shaved off a mortgage.

Michael Pascoe is a BusinessDay contributing editor.

17 comments so far

  • I have been through the economic recessions in the early 1990s and early 1980s. Conditions today (no recession yet) are much better than those recession years (12% unemployment in both recessions).

    Currently, Australians are going overseas for holidays in record high numbers of 7.8 million p.a.

    New car sales remain strong at around 1 million p.a. with 25% of sales being SUVs.

    Private school enrolments remain very strong. House prices have not crashed the way they crashed in the previous 2 recessions.

    Date and time
    April 30, 2012, 1:43PM
    • Michael, thank you for providing some much needed perspective.

      When exactly did we turn into such a pack of privileged whingers? If I hear one more billionaire or another well-housed, well-feed, well-travelled Australian complain about their 'struggles', I'm going to scream.

      Date and time
      April 30, 2012, 2:15PM
    • Those people seem to be the biggest whingers though.

      doing it tough
      Date and time
      April 30, 2012, 2:19PM
    • You should never let reality get in the way of the modern Australian whinge:

      "I'm not as rich as I want to be and it must be somebody else's fault!"

      It doesn't really matter if people living in their little down-under bubble are generally far better off than the rest of the western world, the modern Australian believes they are entitled to more.

      Date and time
      April 30, 2012, 2:43PM
    • Cars = net imports ... meaning you are helping other countries economies.

      View GDP growth here:

      Average GDP growth 20 years ago: 4%, 5-10 years ago: 3%. Currently 2% ... wait that's because we are having a "mining boom". Let's face it, Australia economy is going backwards, low unemployment or not.

      Date and time
      April 30, 2012, 3:11PM
    • Couldn't agree more. There are some areas that have been hit hard but having lived through those other recessions mentioned (ah yes - 17.5% interest rates) there is no contest. We have it pretty good these days. The problem is that people do forget or in the case of anyone 30years or younger just don't have a clue what it it was like back then and hanker for a return to the artificially inflated "wealth" they got from borrowing more than they earned.

      Date and time
      April 30, 2012, 4:55PM
    • With respect Michael I read a lot of Australian economic commentary and I think yours is amongst the most confusing and ill-informed around. Back in those previous recessions mortgages were in relative terms less than half the size they are today so a rate of 7% today is just as bad as 17% back then. Also the unemployment rate stats methodologies have been changed as have work practices. Now self employed people even those who have done no work in the past week are counted as employed. Also there are many more casual positions with very low hours that are counted as employed (only have to work one hour a week). Adding underemployment the rate goes to 13% and adding back in the non-working self employed and those that have given up (ie. non-participating) the figure no doubt is much higher.

      The RBA have their heads in the clouds and have no idea what the real economy is doing shown by their recent missed forecast of inflation. The mining boom contributes little to the real economy as it only employees 2% of workers and the big profits counted towards GDP mostly go offshore. The construction industry is a much bigger employer than mining and has been in the doldrums for 4 years now since credit dried up after the GFC - all the figures and stats are there to support this. Lazy and/or ideological journalism at its worst.

      concerned citizen
      Date and time
      April 30, 2012, 6:26PM
  • Michael, I don't get you, your thoughts are all over the place. It is probably a reflection of how most economist and commentators are thinking at present so you are pardoned this time.

    Date and time
    April 30, 2012, 1:56PM
    • You are spot on - not only are things not so bad now - BUT things here are much better relative to other countries.... but people DONT want to give credit to the government.... they believe anything Negative told them and dismiss anything positive... so whilst the rest of the first world is envious of our economic credentials we are dumping on the government that has steered us so well through the GFC. I cant help but think theres misogyny or some double standard going on here.... Whilst not perfect I think we should give credit where credit is due...

      Date and time
      April 30, 2012, 2:18PM
      • Investor - Don't let the anti government lobby hear you comment like that. They have convinced their FOLLOWERS that a great economy, the envy of the developed world; very low unemployment 5.2%; very low inflation and interest rates; a serviceable debt interest that costs us 0.4% of GDP; a AAA rating by ALL three credit rating agencies (never before accomplished by ANY Aussie government); $450 Billion Pipeline Investment surging through our economy; and an expectant 2012-13 budget surplus, is a terrible failure.

        I don't know how they do it or what they consider is good for the nation, but there you have it. So you shouldn't talk up the Aussie economy, YET I don't think they will comprehend that anyway.

        You will be better appreciated if you concentrate on the more mundane useless matters, such as the situation with Craig Thomson and/or Peter Slipper. THAT will get their attention and the media will love you for it.

        Date and time
        April 30, 2012, 2:19PM

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