THE DISTILLERY: Economic rationalising

Jotters try to get a handle on exactly how the economy is travelling, with employment figures upturning earlier forecasts.

Where is the Australian economy going? The captains of industry are announcing job cuts and expectations of slower growth, while the latest employment figures have cast doubt on the need for another interest rate cut, even with the banks taking a few basis points for themselves. In this morning’s edition of Distillery, the commentators attempt to make sense of the gulf between the headlines and the data. The Australian’s John Durie says this week corporate leaders produced actions to meet the economics forces impacting their companies that we’ve been discussion for months. His colleague David Uren says for every job that’s being cut another one is being created, while The Sydney Morning Herald’s Malcolm Maiden argues that this is illusory and an unemployment rate closer to 6 per cent is on the horizon.

First, The Australian’s John Durie says this week was ‘reality week’ for corporate Australia. Between the slowing earnings-per-share forecasts for the banks, job cuts at Qantas, write downs at Caltex and a slowdown at Wesfarmers, the broader narratives about the headwinds facing the Australian economy are materialising into measurable consequences.

"This is the week reality has bitten for corporate Australia, with the high dollar, slow economy and rising costs halting earnings growth and increasing the pressure on chief executives. All of the issues were well known and expected, but the real costs of economic transition became startlingly clear as the negative impact of the resources boom resulted in a string of disappointing industrial company earnings… Inevitably, some have tried to put a political framework around all of the above, but as each chief executive went out of their way to say this week, that is plain wrong.”

However, The Australian’s senior economics correspondent David Uren can’t get past the latest set of employment numbers that indicate the economy is creating jobs that don’t win the same headlines that the last ones do.

"Qantas yesterday added to the list of companies that includes banks and manufacturers, announcing it was laying off at least 500 positions in its maintenance operations. However, last month's employment figures suggest that new jobs are being created faster than positions are being lost. And Wesfarmers, the company that owns Coles and ranks as the nation's biggest employer with more than 200,000 staff, said yesterday it hoped to increase its workforce this year. 'My hope would be that on a net basis we will increase employment here at Wesfarmers as we expand our retail networks we'll employ more people,' chief executive Richard Goyder said. Economists said yesterday the strength of the jobs market made further rate cuts unlikely in the near future. The Reserve Bank surprised economists last week by leaving rates steady.”

Indeed, The Sydney Morning Herald's Ross Gittins has made points similar to this recently. Yes there will be job losses, but there will also be job creation. It's part of a never ending restructuring that's almost impossible to stop and in most instances counter-productive to try to do so. Then again, The Sydney Morning Herald’s Malcolm Maiden argues that the cuts that are carried out over a long period of time are yet to feed through into monthly economic data releases.

"Australia's unemployment rate is not going to soar. Employment in the expanding mining and oil and gas sectors will continue to rise, and the Bureau of Statistics headline amalgam of job creation there and job losses elsewhere will continue to look pretty good, certainly by overseas standards. But it will rise towards 6 per cent in coming months as cuts that have been foreshadowed, but not implemented, feed in. And underneath that is one of this country's biggest policy challenges. The jobs we are losing are overwhelmingly on the south-east coast, in the industrial and services sectors. The jobs we are creating are of a different order, construction and engineering-centric, mainly, and they are far away, in the north and north-west of Australia, primarily.”

And fourthly in this edition of Distillery, The Australian’s Glenda Korporaal says Australia simply isn’t isolated enough from the global economy to avoid a rise in unemployment.

"All the tea (or middle-class demand) in China is not going to prevent uncertainty in world financial markets, or the strong Australian dollar, and high fuel prices from eroding our economy. It's not fatal, but Australian business enters this year in a mood that is far more sober than our politicians would like us to think. Last month's official unemployment rate may have edged down to 5.1 per cent, but with Qantas becoming the latest big company to announce a major program of layoffs, coming on top of news of layoffs in the banking and manufacturing sectors, the jobless rate is only going to go up.”

On two of the key events that shaped the thesis of many commentaries this morning, The Age’s Adele Ferguson says the government saw the probable closure of Caltex’s refineries in its White Paper, while The Sydney Morning Herald’s Elizabeth Knight says Qantas chief executive Alan Joyce has been battling cries from investors to ditch its Asian carrier strategy, or at least tone it down, in favour of dividends. The Australian’s Damon Kitney concedes that Joyce’s decision to ground his airline’s fleet might have cost the company $194 million, but argues it was money well spent. The Australian’s Richard Gluyas says the headwinds for the banking industry are apparent to all, but Westpac’s sails appear to be catching more than others.

Still on banking, The Sydney Morning Herald’s Jessica Irvine pleads with her readers to see the Australian lending market is served by more than just the big four banks – logging on to rate comparison websites confirms this.

On other company news, Fairfax’s Ian McIlwraith finds Coles boss Ian McLeod giving his Woolworths rivals a backhanded compliment, while The Australian’s Tim Boreham runs the ruler over Caltex, Qantas and ASX in his Criterion column.

In economic affairs, The Australian’s Adam Creighton says the federal government might be on the nose of voters, but it’s at the forefront of the minds of many global investors looking for a safe place to stash their cash. In a separate piece, Creighton says Australians need to be more like Americans and be more mobile when it comes to employment opportunities if we’re to really take advantage of this once in a century mining boom.


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