10-speed economy under stress?
By Mike King - August 1, 2012
Fairfax Media Ltd (ASX: FXJ) chairman Roger Corbett has told ABC’s The Business that a good number of sectors of our economy were in trouble and that the mining boom was the only reason for Australia’s good growth and job numbers. He was referring to the so-called two-speed economy, where if you are not in a section of the economy enjoying the benefits of the resources boom, then you are in the slow lane.
You only have to read about the numerous job cuts by many companies in various industries, while the resources industry is struggling to hire enough skilled staff, to see why his comments make some sense. The fall into administration of Hastie Group and the loss of around 2000 jobs only compounds the issue.
Retailers are doing it tough, with profit downgrades from David Jones Limited (ASX: DJS) and Myer Holdings Limited (ASX: MYR). Advertising revenues are falling and the media sector is struggling – Fairfax recently announced a restructure of its businesses, a greater focus on digital media and up to 1,900 job cuts.
In June, media forecaster Ross Dawson suggested on Sky News Business that print newspapers will be effectively extinct sooner rather than later.
For the building and construction industry, things appear to be just as bad. Boral Limited (ASX: BLD) Chief executive recently said that conditions in the sector were the worst in 20 years. In 2011, new building starts fell by more than 11%, and the Housing Industry Association has forecast an 11.5% fall in 2012.
Not 2-speed but 10-speed
Meanwhile, Cameron Clyne, CEO of National Australia Bank (ASX: NAB) has said that talk of a two-speed economy is damaging – by hurting confidence. He suggested that the constant reference to two speeds made people feel like they were going backwards, if they weren’t in the express lane. He went on to say that confidence, not interest rate cuts, was the key to boosting the economy, and Australia was more like a 10-speed economy, with different sectors travelling at different speeds. (Which makes me wonder if he included any reverse speeds?)
Mr Clyne also suggested that the economy was in transition and that had happened many times in the past and will happen again many times in future.
As I see it, economies are always in transition, as we evolve and our industries progress. Some will fall by the wayside, while new industries will spring up. The fall of print newspapers and the rise of the digital age is the perfect example.
What investors need to understand is that evolution occurs all the time. In 10, 20, 50 and 100 years’ time, the economy, industry and businesses will likely be very different, and the issues businesses face currently, will likely be forgotten.
The issue for us Fools is trying to determine those businesses that will survive and thrive over the long term. Companies that provide essential products and services are a good place to start, and that’s one of the reasons why the world’s most successful investor, Warren Buffett, has invested and held onto investments in companies like Coca-Cola, American Express, Kraft Foods and BYD, a Chinese manufacturer of rechargeable batteries.
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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. The Motley Fool‘s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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Fairfax Media Ltd (ASX: FXJ) chairman Roger Corbett has told ABC’s The Business that a good number of sectors of our economy were in trouble and that the mining boom was the only reason for Australia?s good growth and job numbers. He was referring to the so-called two-speed economy, where if you are not in a section of the economy enjoying the benefits of the resources boom, then you are in the slow lane.
You only have to read about the numerous job cuts by many companies in various industries, while the resources industry is struggling to hire enough skilled staff,…