Pacific Brands' mass sackings a taste of things to come
By Doug Lorimer
The announcement by the Melbourne-headquartered Pacific Brands clothing and footwear manufacturing company on February 25 that it would sack 1850 employees — one-fifth of its global workforce — over 18 months, including 1200 in clothing manufacturing, demonstrated the failure of the Rudd Labor government’s $10.4 billion pre-Christmas “jobs protection” economic stimulus package.
Pacific Brands posted a $150 million loss for the second half of 2008. In the media release announcing the planned redundancies, Pacific Ocean CEO Sue Morphet said the company’s sales in the second half of 2008 had declined by 2.9% to $1041.6 million, and that while “Christmas trading was strong with the December 2008 result ahead of December 2007”, “The potential for the continuation of deterioration in the market means we are not in a position to confidently predict the [current financial-year] second half performance”.
The Rudd government’s first economic stimulus package, announced in October, included $4.8 billion in pre-Christmas one-off payments to pensioners, and $3.9 billion in payments to low- and middle-income families. According to Australian Bureau of Statistics (ABS) data released on February 4, December retail sales were 3.8% higher than in November, seasonally adjusted. The February 4 Australian reported that business economists calculated that only 10-20% of the $8.7 billion in pre-Christmas cash payments was spent in December, the rest being saved or used to pay off debts.
Figures released by the ABS on February 18 showed that $53.5 billion was spent at retailers during the entire 2008 fourth quarter — only 0.81% higher, seasonally adjusted, than in the July quarter. “We were a little bit disappointed by the retail sales volumes today; we thought they would be a little bit stronger than they were”, RBC Capital Markets senior economist Su-Lin Ong told ABC News. “It very much raises the possibility of a negative quarter of [GDP] growth in the fourth quarter.” The December quarter GDP figures will be released on March 4.
‘Stimulus’ not enough
Last November, deputy PM Julia Gillard and Treasurer Wayne Swan issued media releases declaring that the Rudd government’s $10.4 billion stimulus package would “help to create up to 75,000 additional jobs over the coming year”. However, according to the ABS, which classifies as employed anyone who worked more than an hour a week, the number of people out of work rose by 36,800 in January to 540,200, taking the official unemployment rate from 4.5% in December to 4.8%. Since January 2008, when the official unemployment rate was 4.1%, the number of people out of work has increased by 84,100.
With the government’s first economic stimulus package having failed to stop Australia’s slide into recession, on February 3 PM Kevin Rudd announced a $42 billion stimulus package, officially called the Nation Building and Jobs Plan. One third of the package was claimed to be an “immediate stimulus to the economy and support [to] Australian jobs”, through another round of one-off direct payments to low- and middle-income households, totalling $12.7 billion, and a $2.7 billion one-off tax rebate for business investment. The rest of the package , $28 billion, would also go to business through contracts over the next three years for various infrastructure projects. With minor amendments, legislation for the $42 billion spending package was approved by the Senate on February 13, Labor, Greens and independents voting for it and Coalition senators voting against.
In a February 3 media release, Rudd stated that Treasury officials had estimated that the $42 billion package would “support up to 90,000 jobs” over the next two years. He didn’t mention that these same officials estimate still estimate that the ranks of the unemployed will swell to at least 800,000 by June next year as the full fury of the global economic crisis impacts on the Australian economy. This estimate, moreover, is based on the assumption that the Australian economy will record positive growth over that period, despite the deepening global economic slump.
Trade partners in trouble
On February 15, Japan, the world’s second largest economy and Australia’s largest export market, released data for the fourth quarter of 2008 showing that its economy contracted by 3.3% during the quarter, which translates into a depression-level annualised rate of 12.7%. On February 24, Japan reported that its January exports had plunged by 45.7% from a year earlier. While Japan’s January imports were down by 30% from a year earlier, its monthly trade deficit still climbed to a record US$9.9 billion. It was the fourth consecutive month in which Japan recorded a trade deficit.
Japanese exports to the US fell nearly 53% in January, while shipments to the European Union shrank by 47%, Japan’s finance ministry said. Exports to Asia dropped 47%, while those to China fell 45%. “Exports to Asia, particularly to China, are tumbling at about the same pace as shipments to the United States, signalling that even China’s economy may be shrinking”, said Takeshi Minami, chief economist at Norinchukin Research Institute.
China, Australia’s second largest export market, grew at an annualised rate of 6.8% in the fourth quarter of 2008, according to official figures. This was sharply down from a 13% growth rate the year before. However, Associated Press business writer Joe McDonald reported that China’s “economic slump is much deeper than official data show” because its GDP figures are “based on an outdated system that measures growth against the same period a year earlier … Compared to the previous quarter, the method used by most major economies, growth was about 1 percent at an annual pace and possibly zero, economists say.”
“Fourth-quarter expansion from the previous three months was close to zero”, Ting Lu, a Merrill Lynch economist, told McDonald. Standard Chartered economist Stephen Green said his early estimate showed it was “basically zero”, although he raised that to 1% at an annual pace after more calculations. “That would be more in line with indicators that show China’s exports and manufacturing shrinking and weakness in investment and consumer spending”, McDonald wrote. According to customs data released on February 12, China’s exports in January were 17.5% less than a year earlier, while imports plunged by 43%.