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1. Insolvencies ⇑

In June this year 1027 Australian companies went under water – the second highest monthly total on record, and a 21% jump from a year earlier. These Aussie companies were either placed into liquidation, voluntary administration, receivership or were wound up.

Accounting firm Taylor Woodings argues that sluggish trading conditions, high interest rates, less liquid debt and equity markets and enforcement activity by the Australian Taxation Office (ATO) tipped many companies over the edge. The accounting firm thinks that the number of insolvencies will increase in the months ahead.

2. Employment ⇓

There’s a shift from full time to part-time employment as businesses cut back staff costs in the wake of slowing business conditions. In July, 22,200 people lost their full-time job and 22,100 took on part-time employment instead.

Remember that Australia’s relatively strong employment rate by international standards comes courtesy of a once-in-a-lifetime mining boom. Western Australia continues to be the supplier of jobs with 16,300 more people employed over the past year. In comparison, NSW shed 7,200 jobs in 2011, Victoria lost 20,600 jobs in just the month of July (the largest monthly fall since 2003), and Queensland has lost 5,000 jobs since the end of 2010.

Wespac notes that the data highlights a softer labour market and a “potentially worrying trend” – especially considering that the unemployment rate has been held down by slower population growth. Total hours worked in July, up just 0.2%, was the weakest trend pace of growth in hours worked since August 2009.

3. Unemployment ⇑

Australia’s unemployment rate now stands at 5.1%. Bill Evans, Westpac’s chief economist sees unemployment rising to 5.75% in 2012.

4. Consumer Confidence ⇓

Consumer confidence is at levels not seen since May 2009, according to Westpac. Over the past four months, consumer confidence has deteriorated further. Interest rates, housing prices, the carbon tax and unemployment are consumer’s major concerns, and that’s not even mentioning the uncertainty created by global financial market instability.

5. Interest Rates ⇓

The RBA upped interest rates seven times from October 2009 to November 2010 to the highest level in the developed world. Few in the market are tipping that the RBA will increase interest rates this year; if anything, rate cuts could be on the cards. Rate cuts are indicative of a slowing economy.

6. Household Debt⇑

Household debt more than doubled in the past 15 years to 155 percent of disposable income in the March quarter 2011. Household debt in Australia is substantially higher than the 133% American’s accumulated at the height of the US subprime mortgage boom.

7. Household Credit ⇓

Fewer Australians are taking out credit to buy homes. In fact, credit conditions have never been worse. In June 2011, credit to home buyers rose at the slowest annual pace since 1977, the year when central bank data began.

8. Property Prices ⇓

Home prices in the second quarter of 2011 fell by 1.9 per cent from a year earlier, the biggest drop in over two years.

9. Retail Spending ⇓

Retail sales fell by 0.1% in June, the second consecutive month, following a 0.6% fall in May. Retail spending rose a miserable 2.6% for the 2010-11 financial year, which is the worst annual growth in 50 years. David Jones experienced its worst mid-year sales in 20 years.

10. Economic Growth ⇓

The RBA estimates that growth in 2011 will average 2%, which is substantially lower than an earlier forecast of 3.25%.

11. Savings Rate ⇑

Australians are saving more and spending less. The household savings ratio is up nearly 10% – a level not seen for 25 years. Hefty costs for food, utilities, health and education are causing a strain on budgets and are increasing the need to save for a rainy day. A more frugal consumer spells bad news for many businesses that rely on high consumer spending.

12. Building Approvals ⇓

Building approvals are at their lowest level in two years, stumbling 3.5% in June, and confirming weakness in Australia’s housing market.  It was the fifth decline in building approvals out of the six months of this year, and marks a 15.5% drop in the year to June 2011. The trend is unquestionably down.

13. Consumer Prices ⇑

Food prices are forever rising, up 0.9% in the three months to June to an annual rate of 3.6%. Fruit prices alone were up 27% in the quarter. Petrol prices were 4% higher, furniture up 6%, medical services up 3.4%, clothing and footwear up 2.5% and transport costs up 1.2% in the June quarter.

14. National Debt ⇑

The government’s stimulus packages and borrowing to fund the mining and infrastructure boom has seen our net foreign debt climb to 60% of GDP. Banks, the private sector and mining companies have borrowed heavily.

15. Rating The Banks ⇓

Credit ratings agency Moody’s recently downgraded Australian big four banks from a AA1 to AA2, citing concerns that the commodities boom supporting the Australian economy and the banks might not be sustainable.

‘With the domestic economy increasingly biased to the commodity sector, terms of trade that are exceptionally favourable by historical standards, and high asset prices, there is a potential for confidence shocks to impact the banks’ access to funding,’ Moody’s said.

Moody’s warned that the banks were dependent on international borrowing – providing around 40% of their funding – which could not be relied upon. Aussie banks have over $330 billion in long-term bonds issued to international investors and another $100 billion in short-term debt that must be continuously rolled over. If commodity prices fell suddenly, Aussie banks may struggle to get the funding from international markets, it warned.

 

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