Something just snapped in the economy

The Australian Industry Group Performance of Services (PSI) for April is out and shows a precipitous drop:

  • The latest seasonally adjusted Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI®) slumped by 7.4 points to 39.6 in April (readings below 50 indicate a contraction in activity with the distance from 50 indicative of the strength of the decline). This was the lowest monthly reading since March 2009.
  • The sharp fall in the Australian PSI® was driven by declines in the sales and new orders components of the index, which are now both at their lowest levels in almost three years.
  • Reports of weak trading conditions were widespread across all services sub-sectors and all states.
  • Consistent with these reports and with the latest weakening in Australian inflation (with headline inflation just 1.6% p.a. in the March quarter), the input prices and average wages and selling prices indices are now back at or below the levels seen during the Global Financial Crisis.

To give you some perspective, here is what the index showed in 2008:

So, this April we’re at the same level as August 2008.

Now, I’m not a great fan of this index. Note on the top chart how it showed recession in services throughout 2010, then expansion in 2011, which is the reverse of what actually happened in my view. Nonetheless, a drop of this magnitude is signaling that something has quite wrong with the services economy in April. The internals of the survey are also very poor. The most worrying is April sales, which literally collapsed to GFC levels:

New orders were also pounded:

And the weakness was broad based:

In short, this report is suggesting that we are headed into recession. Add in the R.P.Data Index of a resumption of house price falls in April and I’m getting the distinct impression that we’re going through some kind of freeze in aggregate demand.

If I had to pick a cause, I’d say that the bank’s shift to unilateral interest rate moves has dramatically undermined confidence in the RBA insurance policy. Folks are headed into their shells.

We might also speculate that this is why the RBA pushed the panic button, it may have picked this up in its industry liaison or one of its other proprietary data sources.

April Psi 2012 Report

Houses and Holes


  1. SoulNigga Chips

    When I click on the graphs they appear in a pop-up but are exactly the same size as in the original article (too small to read). Is anyone experiencing this. Seems to happy a lot at MB for me.

    • Hey soul nigga, you’re right they don’t expand much bigger, but quick tip, if you’re having problems reading the small charts, you can also zoom in with your browser. Im on a mac and its Command and the + button. Not sure the PC equivalent.

      • russellsmith55

        PC is the control button and + or -. Either that, or hold control and use the mouse’s scrollwheel. I had to do that to read the graph too.

  2. A good time for a sharply contractionary budget then? We’re getting more like Spain every day, except with valuable dirt.

    • And that is how deceived and wrong you are Lorax; Spain is a basket case of misery, Australia (Thank God) is not – we do have a flexible workplace and are not hobbled by a near completely socialist Government and we also have a different work ethic – poor analogy Lorax – we genuinely are DIFFERENT! In the very best way!

      • Brissy for now

        I am currently in Spain and I can tell you things here may be troubling for some, but on the whole things are good or least stable from my experiences with day to day life.In so many ways I can see, we have a fair way to go to catch up in a civilization sense. I think you have some rose coloured glasses welded to your green and gold face mate.

  3. interested party

    There was some sense of trust in the RBA by the general population when it came to rate moves ( unpopular at times but trusted all the same), but now that megabank has called its bluff and can adjust as they feel appropriate ( rightly or wrongly), this loss of trust must filter through to the man on the street who as past history has shown a strong distaste to all things banky.
    I know through conversations I have had lately that the common focus is to get rid of debt.

    • the common focus is to get rid of debt.

      correct, and that will eventually put the economy back on a stable footing.

      • > correct, and that will eventually put the economy back on a stable footing.

        Inevitably it will be stability at a low level but we can’t load up with debt forever.

  4. Rumplestatskin

    Speaking to an RBA insider yesterday about the 50 basis points cut. He mentioned that the RBA sees data that no one else does, and that some of that must have come in very soft in the last month.

    So perhaps us mere mortals (observers of public information) are in for some ‘surprises on the downside’ over the next month or so.

    • Sounds about right to me Cam, I think if most of us saw this data before Tuesday we would of cut by 50bps too. Seems like everyday there is more negative data coming out to support the RBA’s decision. I have to say well played RBA it is becoming clear you made the right call.

      I expect things to worsen on May 8th when the Federal budget is announced and we find out exactly how much money is going to be taken out of the economy to get to surplus. As Prince posted on twitter the Defence budget is already taking a battering.

      Do you guys reckon that this May could be looked back upon as when the straw finally broke the camels back?

        • rob barrattMEMBER

          You’re talking about the new “elephant” class submarines. Finished in matte White, they will be cunningly disguised as asylum-seeking boats, armed with a dozen Fair Work Adelaide torpedoes, guaranteed to slow any opponent to a dead halt for a period of up to four years..

          • They don’t build these things here because they want submarines.
            It’s the same with the car manufacturers.

            They want submarines and cars about as much as I want my nuts waxed.

            What they do want is for Australia to have the skills and logistics supply chain as a strategic asset.

            They want experienced foremen, welders, fitters, logistics coorinatiors etc working in a manufacturing role. They want the logistics chains in working order and ideally, they want factories of if not skilled, then at least passably competant workers.

            Essentially, they want to maintain a capability or at least the expectation of the capability for our nation to produce the vehicles and weapons required to defend ourselves against a lengthy and sustained conventional war.

            Manufacturing is a complex industry, and if they let that completely die without propping it up at all, then we have essentially zero defence capability beyond maybe one month.


            That’s what manufacturing expensive submarines in the most remote (relative to the rest of the world) city of the entire country is about.
            Think about it. How would you approach Adelaide offensively?
            There’s really only one conventional option. The southern ocean. Now, how are you going to get there unnoticed when Adelaide is nestled reasonably far up a relatively tight and shallow waterway, the home of the submarines and has one of the worlds most advanced over the horizon radars?

            It’s also not too far from the steel works in Port Augusta, the lead smelter in Pirie, and the mines that feed them.

            Strategically, hell – geologically, meteorologically, and boredomologically, Adelaide is the safest place in Australia for defensive manufacturing in a time of war.

            That’s why the governments (both sides) continue to do apparently stupid and wasteful things.

          • myne – very true but we could be a bit less optimistic. From what I can gather the most important thing for a sub (after not leaking) is noise, and the Collins class by all accounts was like getting about with a brass band on board.

          • Mining BoganMEMBER

            Can we have someone from the navy comment on the Collins class subs.

            From my understanding if they had of been given the funding they needed there would have been no problem. By the time they were complete they were the best conventional sub on the planet.

            When oh when will facts make the MSM?

          • MB – I remember watching a pretty good doco on the CC sub years ago and there were plenty of navy with not much good to say.

          • Mining BoganMEMBER

            Yeah, I know that one. had an interest in it.

            Not meaning to be a contrarian aj but I’ve heard good things as well. I’d love to know what the navy boys think.

          • George Locust

            “Lengthy and sustained conventional war” is a thing of the past. Sorry but you sound like one of those Maginot Line generals still fighting the last war.

            Modern war between nation states is all about shock and awe and overwelming the opponents decision making infrastructure. By the time “Rosie the Riveter” puts on her overalls the modern war would be over.

            So i laugh when i hear the tripe about food security as if we are threatened by U-boat blockades and “strategic skills” as if building an Abrams tank is only slightly harder than building a Holden Ute.

            Modern warfare between states just doesnt play out that way anymore.

        • I couldnt agree more with both you and Rob on the issue of the new submarines.

          We could easily purchase the latest nuclear powered submarine from the U.S for roughly $26 billion AUD for 12, without having to worry about budget blowouts and design oversights as they are an already a proven vessel. What really struck me as amazing about the US Navy sub was the fact that the company who builds them come in $84 million under budget on one of the vessels and completed it 8 months ahead of schedule. Saving $14 billion + would definetly outweigh the potential job creation in Australia, as that $14 billion could be better spent elsewhere on another important project like fixing this countries shocking roads and public transport.

          Back to economics vs Defence, the defence budget is already precariously underfunded considering the potential threats of the future an Indonesian Navy with 250 ships by 2024 and the ever increasing power of the Chinese Navy. We need to start preparing for these possible eventuations now instead of waiting until we are in the shit like in WW2, Korea and Vietnam.

          • rob barrattMEMBER

            Nicely elaborated. Just to cap it all, they’ve (Rudd) spent less time on basic design configuration with regard to potential cost than they did on the Collins submarine. The RAN has never been in a better position to evaluate an existing active boat design for flaws, but there’s far too much risk in designing and building it ourselves.

          • Give me one reason for a chinese invasion. Australia is already an “economic colony” of China. They almost owns everything on this land….:> just kidding.

          • Agreed Rob, the design that goes into these new submarines is an absolute joke. The Collins class program was full of late deliveries, massive budget blowouts and just generally being a horrible peace of equipment (quoting sailors on this one).

            On one hand we have the U.S manufacturers who deliver their submarines on time but on budget, on the other we have Australian manufacturers with massive budget blowouts who delivered all of the Collins class between 18 months and 41 months late.

            It boggles the mind that both the Liberal and Labour parties put the defence of this country behind their own personal and political gain.

          • I had a mate in Adelaide who’s job was to sell the Collins class to Asian countries. after 3 yrs of well paid work jet setting around the place the total was zero, he still got his bonus though he said, ever year.
            Julia I think sees this as a way of employing Adelaide people, basically a bit like the Canberra of the west?
            Just extra ordinary from a gov chasing credibility?

    • bv2726MEMBER

      This sounds very US spy agency stuff. “trust us, we know things you don’t”.

      If that was the case, how would they “get it wrong”, like everyone said they did this year…

      • correct. look at their forcasts. id say they dont see things that everyone else does.

    • “So perhaps us mere mortals (observers of public information) are in for some ‘surprises on the downside’ over the next month or so.”

      Imagine the shock observers of MSM information are in for then!

  5. Scary guys! Some report on the ABC last night telling me I’m 200 or so better off. He must live in a different world to me.

    • Mining BoganMEMBER

      It’s because you’re cynical.

      People who aren’t cynical are always better off.

  6. And, what, 2.2%(?)of GDP in Government spending being about to be pulled.

    Not long before we print recession.

    • That’s on top of State governments who are already cutting back. If they want to retain office they would be better off scrapping their ‘surplus’ obsession, as I can think of nothing more likely to lose them votes than putting us into recession for the sake of “fiscal responsibility”.

      • Alex Heyworth

        They have to get a surplus this budget so as to leave room for election bait in the following budget. The whole strategy is, of course, based on the assumption that they can manage to survive until the latter half of next year – could be interesting, given developments with the HSU and Mr Slipper.

  7. Another proof that double figures leverage growth over the last decade stimulated aggregate demand more than the ‘experts’ like to admit.

  8. I wonder how long it will be before that great laggard, the ABS employment survey, starts to reflect reality.

    • As soon as qld and Vic temporary government employees finish their contracts at the end of June?

      • +1 that has been my thesis statement since q2 last year and when the accounts are done the blood will run in the books. But hey that is what they wanted a loss making book of negitively geared assests (sorry investments).

    • russellsmith55

      Until a large chunk of the poor baby boomers who are unable to find continuing work realise how far they are away from the pension 🙂

    • Hubert Cumberdale

      +100. Almost daily stories of businesses laying off staff. This has been going on for months and it’s not even registering yet.

    • Headlines from the last 6 months of so:

      Bottle maker sheds 70 jobs
      Thousands of bank jobs face axe: UBS
      ANZ to slash hundreds of jobs
      Jobs cut as strong dollar burns NSW smelters
      Jobs go as Fletcher Jones tailors for buyer
      Westpac to shed jobs as cost cutting bites
      MF Global’s Aussie arm to close, 83 jobs lost
      Toyota cuts 350 Altona jobs
      BlueScope confirms 1000 jobs cut
      Ford to shed 240 local jobs, cut production as demand slumps
      Mortein-maker culls 190 manufacturing jobs
      Telstra to shed 200 jobs in latest cuts
      BHP gears down nickel mine, jobs lost
      Strong dollar claims jobs at Holden
      Macquarie flags more job cuts
      Suncorp to axe more workers: union
      Qantas axes 500 jobs as profit slumps
      60 jobs go as largest tomato grower crushed
      OneSteel to cut 430 jobs as shares soar
      Westpac axes more jobs to bolster profit
      Almost 600 people to lose jobs at WOW
      IAG to axe 600 jobs over three years
      Rising rents force job cuts at discount stores
      Electricity merger will cost 780 jobs
      Gearbox maker stands down 250 workers
      Metcash cuts 478 jobs
      BHP Billiton to close Norwich Park mine
      130 jobs to go in federal law office
      Optus cuts 750 jobs
      Workers locked out, 600 jobs gone as 1st Fleet shut down

      I’m sure everything is fine.

        • reusachtigeMEMBER

          But we never hear about the jobs that are being created, and they must be for the jobless rate to be sitting where it has been surprising many on here.

          • Hmm… don’t think so. It’s being driven by a fall in the participation rate.

          • 1 full time 38hours/week job can be converted into 38X 1 hr/week jobs, this will show up very nicely in ABS UER…..

        • George Locust

          The Jan Roy Morgan employment shocker has not been forgotten. Looking more n more credible in recent days.

      • I don’t know where they’ve all been absorbed. At least some of the MF Global brokers are working at Bell Potter now & earning an income again. Shame Clients Funds are still locked up & return of $ or when, is still unknown. But That wouldn’t be causing low volumes or affecting market confidence would it? Shambolic!

        • russellsmith55

          So they’re going to invest in training for all these positions they urgently need filled?

          • All the major resource companies have comprehensive training programmes.

            It may even eventuate that some projects will require overseas workers should the intake not be met by Australian workers.

          • russellsmith55

            I’d hope so, I hear its a common criticism of the mining industry and reminds me of the Melbourne game development industry when it existed (i.e. when the dollar was 80c).

            It was seen as a growth industry and there were quite a few companies down here. But every job advertised demanded at least 2+ years experience. Most companies refused to even interview candidates without experience.

            Then they had the audacity to complain to the government about a skills shortage, and demanded they invest in training for them / make access to visa workers easier!

            I was lucky enough to get into a startup desperate for people, but I imagine it was a frustrating and fruitless experience for others.

          • Mining BoganMEMBER

            ‘comprehensive training programs’

            I call bullshit.

            Let us have training where people have experience…say two years…before they start training newbies. Better than the three months that happens now.

            This is a big, dangerous game and training is treated as a joke.

          • Mining BoganMEMBER

            Oh, was talking to an insider in the the press department of the Qld government. Seems the conversation was about the mining industry providing more training for locals.

            The response? Only if the government paid for it all.

            This is only anecdotal but…

        • Who is this Mr spokesman?
          “A spokesman for Rio Tinto confirmed the recruitment program was for “thousands” of people. All positions were for projects that were already under way or which had received the green light.”

          Decided to ring the 1300mining number after hours and was redirected to there jobs website.

          WOW…178 jobs listed

      • But redmond in that same time period that you have mentioned the Unemployment rate has DROPPED – perhaps ‘creative destruction’ is a foot!

        • I’m sorry Neil, my mistake, I just saw this

          Looks like all these ex-finance, telecommunications and IT people will be able to become part time Pizza delivery people – problem solved!

          No doubt massive amounts of jobs have been created in the mining states, especially in the massive infrastructure projects.

          People like Ross Gittins are fond of saying the labour market just needs to adapt to where the new jobs are. It’s an easy statement for people to say, with uncalloused hands and rosecea nose, dining in the finest restaurants each night. But the real world is very different.

          People have history, community, friends, family and children in schools. We are not simply a resource they can be simply re-allocated (across states and industries) when needed. The cost of moving is massive, buying into a mining induced housing bubble in the West is a bad decision.

          And most importantly moving to mining states is banking on slowing Communist China being able to effectively manage their economy. Seems the Keynesians now believe an economy that is 100% artificially controlled and manipulated is the utopia….is this really where economics has got to?

      • Jumping jack flash

        The unemployment rate is regulated by long term unemployed (>5 years) being silently shifted onto the DSP for uncategorisable and unexplainable reasons.

        Also remember that most people after retrenchment or redundancy are ineligible for dole, so most don’t even bother registering, and most would be able to find 1 hour of work a week packing shelves at Woolworths, say. (but this shift would show up in the stats)

        There will be some lag as the system adjusts to the inital shock, so UER may rise a bit as workers are dumped onto the dole en masse, but over time, from shifting LTU to the DSP, it will regulate to their target of 4 – 6% ie, full employment.

        Everything is fine, nothing to see here. Move along please.

        ps. Don’t look at the figures for the number of people on the DSP. It is truly shocking. Almost a million people last time I checked.

        • russellsmith55

          I think you might be onto something here. I know a handful of boomers on the DSP. Not because they don’t want to work, and not because they’re ‘disabled’ from work in any significant way – its just because there’s no job opportunities for them at the moment. The DSP was the easiest/most certain way to get money until they could get employed again (which sadly might not be for a quite awhile).

          I’d believe that when the economy eventually turns around (not any time soon) that the number of people on the DSP will fall and the participation rate will increase again.

  9. Maybe now might be a good time to abandon the carbon tax and dismantle FWA.

      • dunkz,

        It may not be the biggest factor, but it cannot surely be dismissed altogether.

        Prior to introduction of the GST in July 2000, there was a notable slowing in quarterly economic growth.
        Dec Q 1999: 1.5%
        Mar Q 2000: 1.0%
        Jun Q 2000: 0.7%

        In the quarter when the GST was introduced (Sep Q 2000), quarterly economic growth was zero.

        Big tax increases can have big effects.

        • What (Great Big New) tax was introduced in 2008, MineBot3.0?? We had a little slowdown then too.

          It’s easy to pluck out numbers to suit your own agenda.

          • I’m not suggesting every slowdown is caused by tax increases. What I am suggesting is that the introduction of higher taxes can lead to lower economic growth.

            Seriously, this shouldn’t even be controversial.

          • George Locust

            The GST was a useful and important reform. One of the things that Howard/Costello got right.
            Labor fought two elections (three if u count 1993) against its introduction. Now it is just accepted as a normal, necessary and effective part of public revenue.

            I have absolutely ZERO doubt that the Carbon Tax will be viewed the same way, ten years from now.

        • That was also the time of the Tech Wreck and the Asian Crisis.

          They were bigger factors than the GST.

          • I doubt that.

            Australia didn’t have a tech bubble/wreck and by 2000, the Asian Economic Crisis was a distant memory.

        • Actually what occured was inflation picked up as the GST and associated costs were imported into the econmy and the RBA increased Interest rates to combat inflation. We also had our dollar drop to about 50 cents to the USD so fuel was at about 1.20 a litre even though crude was only about about $25USd a barrel.
          Increased energy costs will be passed through into the real economy and the same goes for 2008 oil was over 140USD a barrel before it sank like a stone.

          Then Howard ramped up the FHOG before we could have a second quarter of contraction and rates dropped and voila expanding economy again.

          • “Actually what occured was inflation picked up as the GST and associated costs were imported into the econmy and the RBA increased Interest rates to combat inflation.”

            Does this mean you agree with me that the introduction of the GST had a distortionary impact on the economy? If so, then I don’t see why people think the carbon tax won’t as well.

            I will grant that the revenue from the CT will be smaller than the GST, but nonetheless expect it will have effects.

        • CO2 is so marginal an affect it is marginal at best and it has not even started yet. Also thecarbon tax returns cash to Bruce public. Sidelined you have been porned (pawned) by the MSM machine best you reboot.


          • You mean the effect of the carbon tax on co2 emissions will be marginal, at best?

          • Aristophrenia


            “You mean the effect of the carbon tax on co2 emissions will be marginal, at best?”

            Actually – we are reducing our Carbon emissions a fair bit – everyone is only responsible for themselves.

            If we take the attitude of “Im not doing it if they don’t do it”, then we can safely assume we have the mentality and maturity of someone younger than 12 years of age. The attitude is quite simply profoundly pathetic – truly infantile.

            No one can force you to have a mature, adult outlook on life, you have to want to grow up, and try to think about things – we can’t force you to abandon the attitudes of a small child.

            Its up to you.

          • George Locust

            +1 Aristophrenia

            Perfectly stated.
            And lets not forget Australia DOES have one of the highest carbon footprints per capita in the world.

          • Jumping jack flash

            It is a thinly disguised productivity tax, to tax production.

            Goes hand in hand with the GST, which taxes consumption.

            Not surprisingly the effects are largely the same.

            There isn’t much you can produce without liberating carbon into the atmosphere.

          • Yep. the more people you drive into the anti-mining camp with your inane astroturfing, the better.

          • You love it Mav. Gives you another thing to rail against. As it does the preponderance of pro-MRRT, pro-carbon, pro-one side of politics readers here.

            Minebots. The collective voice of reason!

          • dumb_non_economistMEMBER

            2d0k, Caution you’re facing another derating if you’re not careful!

          • russellsmith55

            No I totally see the need for pro-mining posting. The mining industry is clearly too small and under-capitalised to defend itself. And it’s not like any big mining players are buying into media companies, running broad TV campaigns or trying to get seats in politics either.

            No, its definitely a point of view we need to hear more from.

          • Holy are holes that we worship. Bow down to the Miners whom have our best intersts at heart with the proven tricledown affect of their billions to Bruce public.



    • BobTurkeyMEMBER

      Any special interest group could use the current state of the economy to push their own agenda.

      You might as well say we need more carbon/mining/thimble tax to allow governments to spend more.

      Gobble gobble.

      • Jumping jack flash

        yep, carbon tax is the other half of the GST.

        A blanket tax on production to match the blanket tax on consumption.

  10. I’d love another look at the housing index charts previously produced by UE or DE? from the US, Ireland et al. I recall they all seemed to take a vicious downward trajectory at the 12-18 month mark in the decline. Given our recent massive reliance on housing and the fact we’re at the same point temporally makes it very interesting. Further proof we are not different and human sentiment and behaviours are common across geographical borders.

    • russellsmith55

      Actually Im starting to believe Australians are different to the rest of the world… in the sense that we have managed to deny our credit-fuelled bubble longer than anyone else. How have we managed to do that when so many other developed nations have caught on?

      I think that if in a few years time we were down 25% from peak they would still be arguing the same optimistic story and denying a bubble ever occurred. It would, of course, never be a better time to buy! – except I would finally agree with them.

      • And what a comparison! We’re currently positioned somewhere between slow melt (i.e. Japan) and falling off a cliff (USA).

        Interesting times for Aus property.

        • innocent bystander

          think Fig 4 was what Kohler had on the ABC news last night – woud have stirred a few lounge chairs I reckon

          • Only if the PI were watching ABC news… Which I doubt!
            those who still believes in RE are more likely watching the soapy at that time… hearing only what they wanted to hear and knowing only what they heard.

      • Friendship7, good pointer. Not sure why MB didn’t pick this up. What surprised me was that Alan Kohler showed that chart on the 7pm news on ABC. The article of course ran in the BS, which has been running Steve Keen’s pov for a while.

        • it would be interesting to see what Japanese debt to income peaked at in comparison to Australia and US.

  11. “If I had to pick a cause, I’d say that the bank’s shift to unilateral interest rate moves has dramatically undermined confidence in the RBA insurance policy. Folks are headed into their shells.”

    Spot on. I doubt many have considered the psychological impact of this shift.

  12. Annie Oakley

    It seems like the stats are starting to reflect what’s actually happening out there. Australians have been in denial for a long long time but reality is starting to hit. I know a guy who has worked as a self-employed air-conditioning engineer for over 25 years, says he’s never had it so bad and is now applying for a mining job. Even die-hard “Australia is bullet-proof” fans have been very quiet recently. I think the population in general are now realising that the country can’t avoid what’s happened in the rest of the world and are worried about their jobs.

  13. a guy who has worked as a self-employed air-conditioning engineer for over 25 years

    That one sentence says so much about the mountains of efficiency gains yet to be realised in this country…

    • Such as what exactly??

      Whats more efficient than a self employed person working on contract?

      • Just think of economies of scale when buying equipment, tools, commodities etc. Larger companies can also deploy resources (staff) more efficiently by having skilled people do tasks at various projects and overhead goes down with specialisation of tasks. Plus, larger companies have more opportunities to invest more in R&D, innovation, improvement of business processes…

        Obviously there are downsides such as the risks of red tape, being further removed from the coalface etc. but these do not weigh up to the benefits (cost wise). Why do you think successful companies are always trying to increase scale or at the very least forming a co-op with others?
        I think that the enormous number of one-man businesses is part of the reason why Oz is so expensive.

        • russellsmith55

          Can’t help but agree. I know quite a few people (mostly tradies) that couldn’t wait to become contractors instead of employees, doing the same thing in the same field. The reasons? “Don’t have to work for a boss” “Set your own hours” (not surprisingly always less than 40) and “The pay is better”.

          Had they been quitting to start their own company, it probably would have been alright – more entrepreneurship and service supply is a good thing. Nope. The emphasis was on what hour they knocked off work to have a beer, and where they holidayed each year. There wasn’t even price competition between all these new contractors; everyone just gave work to their friends.

          Our productivity problem is largely cultural.

          • And they’re all set up as companies on 30% tax rates, and virtually everything they spend is claimed as a deduction…?

          • And they’re all set up as companies on 30% tax rates, and virtually everything they spend is claimed as a deduction…?

            Most small sole traders don’t establish temselves as companies. There is still a lot of red tape for a proprietry company.

            The tend to form as service trusts, where $80k can be syphoned off to the wife to capture her 30% tax rate, as well as $25k going to super where they can claim a deduction that way.

  14. My two cents:

    The vast, vast majority of common and professional people I ahve spoken to over trhe last, say, 3 months, have been talking about an Australian Recession and its inevitability…

    …many are just common people, shop-owners, etc, but also business people, engineers, etc…most say “Yeah, recession’s-a-coming”

    Many have been feeling the pinch for quite some time – it seems it only the FIREs and govts that don’t know (say?) it.

    • I speak to a wide range of “common” people every day in my large country town, and they are all very, very well aware of the impending recession. Mostly we agree that the only people unaware are the Canberra based politicians. The farmers however are also happy it rained two springs in a row, that was a great relief. They mostly managed to survive ten years of drought and minimal income without resorting to asking for dole money, so they’re not as scared as city folk are about low income. My 20 yr old student dau is in Los Angeles “self-apprenticing” in her field, she has classmates working in Montreal, Hong Kong, and three in Europe – they have all gone “gapping” after starting degrees here, the Oz dollar has been useful in that way for them to travel now, come home later when the dollar comes down in value. I have one employee in a mortgage bind after second baby in three years and second house upgrade – they live in a much more gorgeous house than I but may not get to keep it. I have a second employee also a young Mum of two who has just locked away her house deposit on a term with her bank so she can’t be tempted to buy for another two years, she doesn’t understand what is happening but she has listened to advice from several quarters to not buy just yet. Fascinating times.

  15. As a self employed mechanical design engineer (for more than 10 years), I can also add that my orders in February and March were back down to GFC levels (terrible). I’m not too phased as I have no debt, and saved during the better times, However manufacturing and technology industries in Australia at the moment are doing it extremely tough. I am trying to switch towards infrastructure, which seems more promising.

  16. The point you make about the loss of the RBA insurance policy is bang on. The banks have unwittingly broken the spell for the RBA property put – deleveraging is on.