Australia is renowned for its natural resources.
So in the wake of falling prices for major exports like iron ore, coal and oil, some effects on our economy were certain.
For example, investment in mining projects would be cut, jobs would be lost and unemployment would rise. Interest rates, confidence and the Aussie dollar would also fall.
Just yesterday the Westpac Melbourne Institute Survey of Consumer Sentiment showed confidence dropped by a whopping 5.7% month over month in November. It's at the lowest level recorded since August 2011.
According to Westpac Banking Corp's (ASX: WBC) chief economist Bill Evans, consumers may be overreacting to the current state of the economy. He said: "We haven't seen people as worried about jobs, as unfavourably disposed to the employment story as this, ever, in this survey. That's back to 1975."
Obviously there's something worrying Australians.
GDP, business confidence and unemployment figures have all come in worse than expected over the past few months. Wage growth is expected to slow, whilst politicians continue to hark on about other things in the economy.
House prices are too expensive. Our banks are too risky. The list goes on.
Mr Evans said: "All the variables that are important, like how consumers feel about housing, how they feel about the labour market, their spending intentions, are all pointing in the one [negative] direction, that's unusual."
Investors may feel the pain
When consumers don't spend, businesses are reluctant to invest. This cycle goes on until one day, everything clicks together.
However if we continue to see a noticeable decline in the Australian dollar and if the Reserve Bank of Australia (RBA) lowers interest rates in 2015, as Westpac forecasts, there may be reason for investors to believe things will start turning around sooner rather than later.
So whilst in the short-term retailers like JB Hi-Fi Limited (ASX: JBH), Super Retail Group Limited (ASX: SUL) and Harvey Norman Limited (ASX: HVN) may exhibit some poor results because of tough trading conditions, it's only a matter of time (maybe it's next year, maybe it's the year after) before Australian consumers and businesses start buying, hiring and investing again.
Foolish takeaway
Warren Buffett has many famous quotes but one which springs to mind is this:
"I don't think about the macro stuff. Figure out what's important and knowable. We've never bought or not bought a business because of interest rates or any macro projections."
Remember behind each and every stock ticker there's a business. The business has no control over interest rates, currencies or confidence – they're certainly not knowable and ultimately unimportant if you're a long-term investor. So if you're investing in the share market, block out the noise and focus on the business, research everything you need to, determine a good price to pay and stick with it.
