Full impact of recession still to be felt

The Press

First there was the McDonald's theory of international relations; now there is the Starbucks recession indicator.

The theory, first expounded in Slate.com, goes something like this: countries with high numbers of United States coffee chain Starbucks outlets are more likely to have suffered financial meltdowns because the outlets are an indicator of connections to the damaged American financial system.

The US, Britain and Australia have suffered from the credit crunch, while those without the coffee chain, such as Argentina, Brazil and Italy, have remained largely untouched.

New Zealand is well-off for Starbucks, with 42 for a population of four million. If the theory has any validity, it follows that New Zealand's recession, which officially started in September, will be a bad one.

However, the full impact has yet to be felt.

The pointers are there and eventually it will percolate down, as the once fashionable trickle-down theory propounded would happen with tax cuts and breaks for business and the well-off.

"We haven't seen the impact trickle through to the public yet," says Canterbury Employers' Chamber of Commerce chief executive Peter Townsend. "It's the reverse of the trickle-down theory."

The chamber talks to about 3000 businesses across Canterbury, and he says there are signs of increased volatility.

Companies are not replacing staff and some are beginning to make redundancies.

"It's in anticipation of tougher times," he says. "It's not where they're up against the wall but rather that they're planning for the future.

"We're anticipating things to get significantly worse before they get better. We still haven't seen the impact of the crisis in New Zealand."

He says relatively full employment (just 3.6 per cent unemployment in Christchurch) is insulating the country and region against the full effects of the downturn.

"I don't expect it to impact until there's increased unemployment that's when it will bite home. By and large that hasn't happened yet," he says.

But it's coming. In a survey this week from recruitment firm Hudson, one in five businesses in the South Island said it planned to decrease staffing in the next six months.

The hiring and firing intentions of the South Island employers, with 21.7% intending to reduce staff in the first half of next year, are grimmer than the national figure of 16.4%.

The survey suggested the hardest-hit sectors in the South Island were likely to be manufacturing, followed by the construction, property and engineering industries.

Townsend says the other factors insulating the economy are the drop in interest rates and fuel prices, as well as tax cuts.

That is borne out by the experience of the Briscoe Group, which owns Briscoes homeware and Rebel Sport.

Managing director Rod Duke says that after a horror three months of trading from July to August, sales rebounded over the past couple of months, and he expects Christmas to be reasonable.

"Fuel is down, housing interest rates have come back and will come back more," he says.

"We've had inflation stabilise and there's been a change of government. So if you look at that scenario, I think it's more likely to be positive than negative going forward.

"I think the mood has changed. That's the sense I'm getting."

The warning signs are still there and some sectors that get more business in tough times, such as pawn shops and collection agencies, are noticing a change.

Mark Swain-Rogatski, of Linwood Cash Converters, says that over the past month business has jumped.

"We've been getting more stuff in recently," he says.

"People are pawning more goods and we've had to turn away a lot of goods because people are bringing in real old stuff anything they can find."

He says the storeroom was empty a couple of months ago but it is now full, and there are plenty of shoppers.

Baycorp general manager Joe Nel says there has been a steady growth in collections referred to the company, beginning about 18 months ago.

"But in the last three months it's really hit hard," he says. "In the last three months there's been a sharp acceleration in commercial debt. Businesses are starting to fail. We do expect it to deteriorate further."

Nel says many businesses are tightening their debt-management procedures and making more of an effort to collect themselves before calling in Baycorp.

"From our point of view, getting cash out of debtors is getting more difficult," he says.

"There's two reasons for that people are not able to pay and businesses are doing a better job of their debt management, so by the time it comes to us, all avenues have been exhausted."

Charities are noticing a steady increase in demand.

Vikki Manning, of the Salvation Army's Hope Centre, says the number of people seeking assistance has risen and over the past month the centre has noticed a drop in donations.

"This last month, things have slowed down a little (for donations) and more people are coming through our door, although it's probably just the time of year," she says.

City Missioner Michael Gorman says business is brisk at the mission's foodbank, with more people than food parcels on Thursday, and it is considering increasing the number of parcels it has available each day.

"Up until now it has been a bit of a mirage," he says. "But when redundancies start to happen, that's when it hits people and we're starting to get a few of them."

The tough times have not impacted on what people are prepared to give.

"People are still good with donations," Gorman says.

"I think people are more aware in hard times of other people. I'm always impressed by their generosity."

Methodist Church general secretary David Bush says the church has not seen any growth in congregation sizes owing to the tough times but has noticed an intriguing trend.

"We have had perhaps a few more inquiries from parents about their kids being involved in Sunday School," he says.

"That could be related to the current situation; people are thinking that set of values and understanding are different and wanting their kids to be involved."

People also still seem to be able to pay for small treats.

Beer sales have remained unaffected, reinforcing its reputation as recession-proof.

Brewing giant Lion Nathan has raised a glass to "resilient beer drinkers" in challenging times after posting a 3.8% rise in annual trading earnings for its New Zealand business.

Despite the downturn, the domestic beer market grew 0.3% in the year to September 30.

Another luxury is also still on the menu.

Les Mills regional manager John Dunford says the recession has not affected membership at the company's two Christchurch gyms.

"Oddly enough, we haven't seen a lot of difference," he says.

"Having said that, we've been expecting that (a slowdown), but it hasn't come through and I don't know why that is.

"It could be that our target group, Gen Yers who are 18 to 30, probably have a disposable income and the gym comes fairly high up the food chain for their priorities."