Yesterday’s news of a fall in retail sales in NSW in the September quarter, in contrast to growth (albeit weak) everywhere else, again points to the extraordinarily serious problems the NSW economy currently faces.

If there is a single factor that will drag Australia into an official recession, it will be the NSW economy, which is already shedding jobs and must surely be on the cusp of negative growth.

In particular, there are significant emerging employment losses occurring in suburban Sydney.

The Australian Bureau of Statistics’ labour force data for October provides a breakdown of job growth and losses according to region. In the year to October, there were 20 regions across the country where employment fell. Nearly half were regional and rural areas.

But a staggering eight of the 20 areas were in suburban Sydney. They included an 18,000 drop in jobs in outer-western Sydney. While there were small job losses in some parts of other capitals, nowhere else showed a consistent fall in employment across most of a major metropolitan area.

Retail accounted for part of the fall — in the year to August, full-time retail employment in NSW fell, with no corresponding growth in part-time employment. Jobs in manufacturing in NSW also disappeared in that period, both full-time and part-time.

Across NSW, overall job growth was an anaemic 27,000 in the year to October. And the problems in Sydney are thrown into relief by the fact that areas linked to resources — the Illawarra, Newcastle and the Hunter — grew strongly. Employment briefly peaked above 3.4m in the early part of the year, but by October had slid back below that level. In Victoria, jobs grew by 33,000, in Queensland by 66,000 and WA by 59,000.

In NSW, it will be a case of a slowdown coming on top of the impressively disastrous efforts of the NSW Labor Government. And given the size of NSW, it means it will be difficult for the rest of the country to avoid being dragged down. NSW doesn’t function in isolation from the rest of the economy, any more than Australia’s does from the world.

The only short-term fix in NSW would appear to be the removal of the current Government as a way of bolstering consumer confidence and convincing businesses that the bad times are over. Clearly, waiting until 2010 for this isn’t acceptable from an economic point of view.

Other labour force data suggests that business across the country have already started cutting back on their employees’ hours, without actually shedding jobs. In the year to October, the numbers of workers working less than 39 hours a week increased significantly, while the average number of hours worked remained steady or decreased slightly. This seems to have occurred particularly in manufacturing, where the numbers working less than 40 hours a week lifted in the middle of this year and the numbers doing overtime dropped.

Most disconcertingly, while October is traditionally a slow labour month (school holidays, pre-Christmas lull), Australians worked on average fewer hours in October 2008 than in any other month since records began, excluding the traditional January break.

The upside of this data is that it suggests employers in areas like manufacturing that are directly exposed the downturn and credit crunch are preferring to drop staff down to fewer hours rather than retrench them. This will soften the descent into unemployment, giving more time for the Government’s stimulus package and the RBA’s rate cuts to start working. The construction industry, which now employs more than 800,000 people, was still growing August, even in NSW (although not in Victoria), although it may have taken a hit in the last three months.

That still leaves the problem of NSW and its wretched government. It’s not just an economic problem, it’s a political problem as well for Kevin Rudd. Retaining government will be difficult in 2010 if suburban Sydney is mired in high unemployment.

Peter Fray

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