Australia Services Index Plunges to Significant Contraction; Bleakest of Views From Retail Shops; Retail and Housing Bloodbath Coming Up

Two more signs surfaced today that suggest Australia is headed for if not in recession.

Australia Services Index Plunges, Now in Contraction

Bloomberg reports Australian February Services Fall to Lowest in Almost a Year

Australia’s services industry declined in February to the lowest level in almost a year, driven by a drop in new orders as the gap between resources and other industries widens, a private survey showed.

The performance of services index sank to 46.7 last month from 51.9 in January, the weakest reading since March last year, Commonwealth Bank of Australia and the Australian Industry Group said in Sydney today. Fifty is the dividing line between expansion and contraction.

Today’s report, based on a poll of about 200 companies, is similar to the U.S. non-manufacturing ISM index.

Australia Service Index Components

• Index sank to 46.7 from 51.9
• Selling prices fell to 44.2 from 46.9
• Employment measure slid to 47.5 from 51.2
• Sales declined to 47.5 from 49.4
• New orders plunged to 45.6 from 54.1
• Wages indicator dipped to 57.7 from 57.8

This is nothing short of an absolute disaster. That wages have held up is not good news either. Think retailers or any other service industries will be hiring? If so, think again.

Bleakest of Views From Retail Shops

The Herald Sun comments on the Bleakest of views from the shopfronts.

THE Australian retail sector is in trouble like it's never been before. Not even in the dark days of the 1990 recession.

That should have been made blindingly clear when Woolworths, our biggest and most successful retail group, unveiled on Thursday its first drop in profit in nearly 20 years.

Yes, Woolies is getting out of electronics because it stuffed up with Dick Smith.

This story is repeated, with varying degrees of intensity, across all retail.

The casualty list is long and growing. From women's fashions - one of the mainstays of shopping - to housewares and home furnishings, to the big department stores.

Sales are struggling, profits are plunging, jobs are being slashed and names are disappearing from high streets and shopping centres.

The article concludes with complete economic drivel...

The numbers from the big listed retailers, such as Harvey Norman and David Jones, are ominous enough. We are not really seeing the havoc wreaked across small mum-and-dad retailing.

Lower interest rates would help, leaving more money in consumers' pockets.

That's why it's not wise to rule out further rate cuts, just because of the continued boom in the resources sector.

The jobs and spending from the boom, at least, put some floor under retail. But for the foreseeable future it's going to be good for shoppers.

Not so good for shopkeepers. Or the broader economy.

Retail and Housing Bloodbath Coming Up

There is so much misguided drivel in the article that I hardly know where to start.

Here is some nonsense about a shopper's sweet spot: "For shoppers, it's something of a sweet spot. They've never had it so good. The $100 you spend in a supermarket buys you about 5 per cent more in goods than it did a year ago."

Retail prices in Australia are absurd. A 5% reduction in prices is hardly a bargain. As for the notion mining will carry the economy, forget about it. Commodity prices are going to plunge, and besides, commodities are not a big driver of jobs anyway.

There is no "floor" under retail. The bottom is going to fall out, and unemployment is going to soar. In turn, rising unemployment will clobber Australia's already deep-in-trouble housing sector.

As for small shops, they are completely doomed. Store owners with little leeway on wages will not get the income they need to pay taxes, interest, utilities, and rent.

Expect an across the board retail and housing bloodbath because one is coming.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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