Take careful note of the figures we got this week on the state of the economy in the three months to September. Why? Because they show the economy had slowed to stalling speed before the full force of the global financial crisis had hit us.
It's the last such reading we'll get and our political leaders are hoping it will fade quickly from our minds.
Why? Because it's a reminder that part of the bad things that lie ahead is a consequence of our own actions, whereas it's easier for the pollies if we blame the whole disaster on global factors outside their control.
According to Wayne Swan, for instance, "the slowing of our economy in the September quarter showed that we cannot completely resist the pull of international economic forces, but we are better placed than other nations to face this global financial crisis".
See the spin?
The troubles in the world economy have been building since the revelation of the subprime mortgage debacle in August last year. But the great conflagration of the global financial crisis didn't occur until after the American authorities allowed the collapse of the Lehman Brothers investment bank on September 15.
That's what really put the wind up the financial community, froze some credit markets, sent sharemarkets plunging, precipitated a string of bank bail-outs in America and Europe, prompted governments around the world to guarantee bank deposits and scared the pants off consumers and business people around the world.
It was these developments that prompted the Reserve Bank to slash its official interest rate in early October, again in November and again this week, cutting it by 40 per cent. Clearly, it's expecting the fallout on our economy to be huge.
But that is yet to come. Virtually none of it would have affected the figures for the three months to the end of September.
So what was happening in the economy before the conflagration? The national accounts show the economy had slowed almost to a halt, with real gross domestic product growing by a negligible 0.1 per cent.
And this was no sudden reversal. In the previous September quarter, the economy grew by a rip-roaring 1.1 per cent. In the subsequent quarters the rate dropped to 0.9 per cent, 0.6 per cent and 0.4 per cent.
It's thus clear that the economy has been slowing sharply since the beginning of this year.
The main slowdown has been in consumer spending, which grew by just 0.1 per cent in the quarter, following a fall of 0.1 per cent in the previous quarter. That is, consumer spending - which accounts for about 60 per cent of GDP - has been flat for six months.
Similarly, spending on new homes and renovations grew by just 0.2 per cent.
The main thing keeping the economy going was business investment spending, up by 1.5 per cent. But this was mainly new engineering construction, linked to the mining boom.
The volume of exports showed no growth during the quarter, whereas the volume of imports grew by 1.6 per cent, so that the combined effect was to subtract 0.4 percentage points from GDP.
But what is it that's caused the economy to slow so sharply over this year? What has caused households to hold their consumption spending steady and stop investing in new housing?
Well, no doubt many factors have been at work, one of them being the high price of petrol, which reached a peak in the September quarter and left people with less to spend on other things.
Another factor would have to be a "negative wealth effect". When people perceive themselves to be wealthier, they tend to consume more and save less. And when, as now, people perceive themselves to have become less wealthy, they tend to spend less and save more. Continued…
