Sales are down: in department stores, electronics emporiums and at the school canteen.

At Roseville Public School, in the heart of Sydney's affluent North Shore, children started arriving with less money in their pockets about one year ago, says Jane Cudicio, a canteen supervisor. She blames interest rates.

"We used to take $500 to $700 on a Wednesday, but I might take just over $400 now."

Another North Shore canteen supervisor says sales are down 20 per cent in the past three months. What's more, volunteer staff keep leaving, forced back into the paid workforce to bolster household budgets hammered by higher fuel bills, rising interest rates, smaller bonuses and dwindling market returns - and in some cases, no doubt, the impact of margin calls on highly leveraged share holdings.

"Just at the moment it is very difficult to get a lot of volunteers to help. A lot of the mothers are going back into work ... as part-time lawyers, doctors, nurses," she says.

Still, the North Shore's stockbroker belt is nowhere near Struggle Street. But economic anxiety no longer discriminates, and is creeping into the beltways of professional suburbia. As consumer spending slows, businesses of all sizes are starting to struggle.

The rumble of bad news gets louder by the day. This week the ASX 200 slumped below 5000 points for the first time since 2006. Another retailer joined a growing number slashing profit forecasts. And a venerable international institution declared the world economy could be at a "tipping point", predicting the pain of the credit crisis had much longer to play out. And underlining the continued strains on credit markets, St George Bank lifted its variable rate home loan by another 0.20 percentage points yesterday.

But it is by no means certain that the only direction is down. The economy is caught between powerful opposing forces. In one sense it seems ludicrous there should be such prevailing doom and gloom. Australia is living through one of the biggest export price booms in history, delivering a $200 billion windfall back into the country in the coming year.

There is a good chance, say economists, Australia will not follow the US, and potentially Britain, into recession. Yet that does not mean it will not feel like one for much of the population. While mining continues to power away, sectors that dominate cities like Sydney and Melbourne - retail, finance and property - will strain against the headwinds of high borrowing costs and elevated levels of household debt.

In short, while the mining boom may continue, it will be nowhere near as much fun as the housing boom.

THE BANK for International Settlements is a font of wisdom for the world's central bankers. Top staff from the Reserve Bank spend time in Basle with the BIS, learning to negotiate its unequalled spectrum of detail about the waves of international finance.

For years the BIS has been warning about the problems of an upswing funded by cheap debt. Something had to give, and last year it did when the US mortgage market went pop. "In the aftermath of a long credit-driven boom, it would not be surprising to see turmoil in financial markets, slowing real growth and temporarily rising inflation," the BIS said in its annual report this week.

In contrast to early reports that the credit crisis was receding, the BIS said the dislocation might continue for a while. "While difficult to predict, their interaction does appear to point to a deeper and more protracted global downturn than the consensus view seems to expect." Indeed, with the world economy at a potential tipping point, the BIS said it was even possible a prolonged economic downturn could lead to deflation, or falling prices - a scenario more dire even than the current inflation strains.

"Unfortunately, when one considers the possible interactions between a weakening real economy, high household debt levels and a severely stressed financial system, such an outcome, even if unlikely, cannot be ruled out."

HOWEVER, Australia should be different. We have mining and the phenomenal rise in mineral export prices being fuelled by the industrialisation of China and India.

The chief economist with ABN Amro, Kieran Davies, says: "This is by far the biggest positive for the economy. The lift in export earnings should be tremendous."

Even before Rio Tinto negotiated an 85 per cent price rise for its iron ore contracts last week, the Australian Bureau of Agricultural and Resource Economics was forecasting a record $212 billion in commodity exports this financial year. While many developed nations have been cutting interest rates to spark life into faltering economies, the Reserve Bank has been raising them to 12-year highs to cool things down.

It is unclear, though, why rising commodity prices should make a difference to people's lives: why casual shop assistants in Sydney should be more confident about their jobs than shop assistants in Seattle. Or why accountants in St Ives should be happier than their counterparts in Surrey. One reason, economists say, is Australia's rising dollar, which reduces the price of imports such as clothes, electronics, and fuel. The huge boost to the terms of trade - or the ratio of export prices to imports - has pushed the currency to near-record highs since it was floated in December 1983.

The boom also assists the sharemarket performance of mining companies, helping put a floor under superannuation returns. And, in time, the pay packets of mining workers and executives will flow through the rest of the economy as they take holidays, buy houses and get managers in Sydney to play with their superannuation funds. "There is a virtuous circle here," says Dr Alex Millmow, a senior lecturer in economics at the University of Ballarat.

John Quiggin, of the University of Queensland, says growth in the mining sector has helped temper the downturn in housing construction on the eastern seaboard.

"We've had a manufacturing and housing slowdown without feeling the effects in terms of income," Professor Quiggin says. "Because of this we haven't seen the big cascade in housing prices that there's been overseas."

Professor Quiggin considers it a reasonable chance that Australia will ride out a US recession. It is likely there will be "a bit of a slowdown in China but not too much of one".

However, there is always the risk that the virtuous circle could disappear. For much of the past decade the Government has been using tax cuts to funnel back into the economy its growing tax take from company profits, helping redistribute the gains of the mining sector. The latest batch of cuts kicked in this week, putting as much as $52 a week in the pockets of workers. But with inflation running hot, this strategy may no longer be politically or economically palatable. "This effect could be more muted in the future," Davies says.

The Federal Government plans to save the budget surplus in new infrastructure funds. "It might take some time for that money to actually be spent on infrastructure," Davies says.

It is also easy to overstate the importance of mining to the economy. After all, mining makes up only 6 per cent of GDP. Only about 1 per cent of the labour force works in the sector. The economy grew 3.6 per cent in the past year, but the mining sector fell 0.4 per cent, national accounts figures show.

Dick Bryan, an associate professor of economics at the University of Sydney, says mining tends to enjoy psychological associations: the idea of pulling something out of "our" ground creates a "nationalist, albeit deluded, atmosphere" to the perception of mining as a national enterprise. "There is a little bit of ... exaggeration of the significance of this industry on the economy," Professor Bryan says. "It is going to have a big impact on the exchange rate and on small sectors of employment. But it shouldn't be exaggerated."

Mining's contribution to growth is expected to increase in the coming year as development projects come on line, but the big boom in the past year was in finance and insurance, which grew by 14.5 per cent.

In contrast to mining, sectors under pressure from rising rates and the fallout of the credit crisis provide about 22 per cent of all jobs, a report this week by JPMorgan and Fujitsu shows. Mostly small businesses, they are confronted with the increasing strain of funding costs. Banks have been quicker to increase the borrowing costs of businesses than they have for households, adding 0.6 percentage points to business borrowing rates against about 0.4 percentage points on housing loans.

"Importantly, these 'pressured' sectors have 45 per cent of the workforce in part-time employment, reflected in the skew of low weekly earnings in retailing and hospitality, as opposed to mining which is at the other end of the spectrum," the report said. As business turns down, these casual and part-time workers would be vulnerable, the authors said.

And for the rest of the economy, the stupendous rise in prices enjoyed by coal and iron producers could also be a burden. The Reserve Bank governor, Glenn Stevens, signalled in his most recent comments that household consumption would need to be reined in for the duration of the rise in mining investment.

"In most economies it is usually not possible, and certainly not prudent, to try to have a consumption boom at the same time as an investment boom," Stevens said.

In other words, the Reserve Bank will use interest rates to choke the retail sector to create space for mining. "Practically speaking, domestic consumption, together with housing demand, and some areas of business investment not linked to the resource sector, is being asked to make some room, for some period of time, for the rise in other forms of investment that will sustain higher income and living standards in the future," he said.

The Macquarie Group economist Brian Redican says the impact of the commodities boom could prevent the economy tipping into recession but, for the eastern states in particular, conditions will feel as bad as a recession.

During the housing boom of the past decade, a large proportion of the population benefited from the rising tide of wealth; an economy geared towards mining will not have the same effect.

"A mining boom is much more concentrated. There is an awful lot of people that don't get much of an uplift if you average it out," Redican says. "This is really going to be concentrated in consumer spending, which is going to fall a lot worse than a fairly mild decline."

ALREADY, the weakness is being felt across the retail spectrum. Consumer discretionary stocks have lost more than 40 per cent this year and are the worst performing industry sector on the Australian Securities Exchange.

Just Group, the listed retailer behind Just Jeans, slashed its profit forecasts by 10 per cent this week. The managing director, Jason Murray, said his company would wind back hours offered to casual staff.

Even Richard Uechtritz, who as chief executive of JB Hi-Fi presides over one of the few retailers confidently predicting rising profits, says the headwinds count among the most trying he's seen.

"It is the toughest retail period that I have experienced," says Uechtritz, a 20-year retail veteran.

Real retail spending has been flat or down for the first half of the year, after a stellar year of sales last year, official figures show. But it could be just the start. "The general trend is it's going to be tough times for most of next year," says Jeff Rogut, the executive director of the Australian Centre for Retail Studies. "There are no huge, bright clouds on the horizon for the next 12 months."

At Bing Lee, the general manager, Phil Moujaes, says turnover has been in a slow but patchy decline, not helped by a mild winter.

"We are seeing that trading conditions have become tougher in the marketplace ... in some weeks there's been a decline in the number of people that walk down into our stores."

Unlike Just's Murray, Moujaes says he is not yet considering putting off staff or reducing casual hours. "We might slow down employing new people, but as far as the existing staff we are not looking to cut down."

Even David Jones has launched an out-of-season sale promising "record savings and further reductions".

Many say consumer preferences will change. "I think we will see a shift in spending, not necessarily a total reduction in spending," Rogut says. "People will change where they shop and how they shop."