There was no easing in the economic slump overnight as the Reserve Bank of Australia prepares to chop at least 1% from its key interest rate later today.

That was after the Federal Government revealed a $115 billion (first estimate) shortfall in tax receipts over the next four years, or around $30 billion a year.

The news from the US (plus a report that South Korean exports plunged more than 32%) will see the RBA go for as large a cut as it can justify.

But news of a slight easing in the manufacturing slump in the US, China, the UK and Australia provided a faint hope that perhaps things were steadying in the various economies.

But that was overshadowed by more job losses and falls in American consumer spending and construction activity in December.

A report from the Federal Reserve confirmed that there had been no let-up in the credit squeeze and rationing as banks in the US keep a tight hold on lending.

Macy’s Department store chain is cutting 7000 jobs, including 40% of managers at its head office, focusing attention again on first time jobless claim figures and January employment data out later this week. Big bank Morgan Stanley is said to be eying cuts of around 1800 staff.

The Institute for Supply Management said its US manufacturing index was 35.6 in January. That was up from December’s 32.9, but most economists dismissed the rise as “noise’ or a statistical bounce (any reading below 50 indicates a slowdown, and one below 41 is typically associated with a recession in the broader economy).

The ISM’s gauge of new orders rose to 33.2 from 23.1 the prior month, when it reached its lowest level since records began in 1948. ISM’s export orders gauge increased to 37.5 from 35.5.

The gauge of inventories fell to 37.5, the lowest since July 2001, from 39.6.

In Australia, the resources slump has been quick to chop into Australia’s trade account, following the surge in iron ore, coal and oil prices. Figures out today from the Australian Bureau of Statistics reveal a $390 million dollar fall in the seasonally adjusted trade surplus in December of $589 million.

The ABS said the drop was “was largely driven by the coal, coke and briquettes component, which fell $679m (11%)”: a direct result of the fall off in demand from steel groups around the world and some Asian coal buyers.

The trade balance has fallen almost 80% since the huge $2.58 billion figures was recorded in October, which will probably go down as a high point. The fall from November to December was 40%.

Meanwhile, manufacturing activity eased for the eighth straight month. The Australian Industry Group’s performance of manufacturing index rose 2.9 points to hit 36.6 in January, but that was still depressed and well under 50 which separates expansion from contraction.

The measure has been contracting since June when the global financial crisis began to weigh on economic forecasts, but edged higher in December and now January.

In China, a survey of the country’s manufacturing sector showed it contracted for a sixth month in January. The CLSA China Purchasing Managers’ Index rose to a seasonally adjusted 42.2 from 41.2 in December. The output index rose to 39.7 last month from 38.6, a record low, in December. The measure of new orders rose to 39.9 from 37. The index of export orders jumped to 36.3 from 33.6

In the UK, the latest monthly purchasing managers index edged up to 35.8 last month from the 34.9 hit in December. It was the third lowest recorded and confirms the depths of the slump in UK manufacturing isn’t getting better.

But as welcome as the news from manufacturing was, the falls in US consumer spending and construction were gloomy.

US consumer spending contracted in December for the sixth month in a row as personal income again shrank.

The US Commerce Department reported that consumption expenditures fell by 1.0% in December from November, a steeper fall than the 0.9% fall from the market. Consumer expenditures shrank by a revised 0.8% in November. Personal income also contracted for the third consecutive month at 0.2% in December, 0.4% in November.

Personal income, which tracks income from all sources, is the largest component of total income, with wages and salaries estimated using payrolls and earnings data. It powers consumer spending which in turn powers 70% of US economic activity.

December marked the sixth-straight month in which consumers cut back on their spending, a decline that accelerated dramatically in the last three months.

For the fourth quarter, spending fell a record 8.9% — the worst quarter for spending since the Commerce Department began tracking that statistic in 1947.

And, finally, the Barbie factor — perhaps the best indicator so far of how tough conditions have become in the US for consumers.

Mattel owns perhaps the world’s best-known kids brand: Barbie, and not even that iconic figure could resist the power of the slump.

It said overnight that Barbie sales around the world fell 21% in the fourth quarter, on the eve of her 50th birthday celebrations this year.

Sales of other top toys Hot Wheels and Fisher-Price also plunged, dragging fourth quarter sales down 11% and earnings a massive 46%.

The company says it will cut costs and rebuild sales, as well as maintain low debt: that raises the question, though, whether Barbie will get the new clothes, makeover and 50th birthday party she obviously deserves after spending all her life with the one company?

Will Barbie’s loyalty be rewarded or will a party be seen to be ‘excessive’ in these straitened times in American business?

Peter Fray

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