Last week I had a conversation with a business owner that summarises what is happening to our economy.
His name is Louie, the owner of the Just Quality Fruit Kiosk which operates at Chifley Square in Sydney’s CBD. I was buying some fruit and he showed me a plastic container he would usually put fruit salad in for customers. It was filled with five cent coins.
“My five-cent container usually takes six months to fill,” said Louise. “Now? I fill it every two weeks.”
The plight of retail and the extent to which it is harming small business, is something I’ve been trying to keep tabs on. So I asked him what he made of people using five-cent coins again – especially since his customers are well-heeled people.
Louie shrugged. “People tell me they are clearing out their desks – they are emptying the change drawer in the car. They save the note – spend the coin.”
I don’t need to spell out what frame of mind Australians are in when they are saving notes and spending coins. It’s the kind of phrase we associate with The Depression.
But Louie’s observation had resonance because on the same day, the Australian Bureau of Statistics released its Income Distribution figures which showed 2010 as a year when total Australian disposable income dropped for the first time in 14 years.
Not only did Aussie households experience a fall in income but the ABS Labour Productivity graph made for sobering reading: in 2010, Australians worked more hours but received a diminishing rate of GDP per hour worked.
Working their hearts out and going backwards. This picture of falling income doesn’t sit well with the Reserve Bank keeping interest rates high to combat inflation caused by wages growth.
Few people believe the ‘wages break-out’ scenario, because only a small sector of the economy are getting big pay rises.
But quite aside from interest rates is the pull back in consumer spending caused by low confidence, rising cost of living and flat income. As I have pointed out before, it’s the big chains such as David Jones and Colorado that grab the headlines, but most retailers are small businesses, and small business employs about half the work force.
The RBA has focused so hard on controlling the inflationary impact of mining that it may have missed the unemployment scenario that comes from a withering small business sector that is being deprived of spending consumers.
The Reserve Bank is one of our most important institutions and has some of the smartest people in the country working for it. It’s time for the Bank to try something new before the next figures we see are record business closures and rising unemployment.