How can the Hunter accelerate its recovery from COVID-19 shutdowns and flourish in the 'new normal'?

We can become a 'visible region' to drive more astute decision-making by business and government here and in Sydney, Canberra and elsewhere.

This visibility means sharing data on trends over time as well as case studies explaining cause and effect to reflect our experiences.

Visibility can highlight opportunities more clearly to those who are considering visiting, living, working or investing here.

How do we make the Hunter more visible?

That requires describing in an accurate and compelling way what is happening in our communities and enterprises socially and economically. Agreement on what information to gather and share necessitates the enhancement of working relationships and common understandings across sectors and the region. That should result in stories of recognised success and ongoing disadvantage, but also agreement on judicious use of the growing array of data.

We hunger for information, particularly in a time of high uncertainty. We want the latest data on trends, what we can expect in the future, and identification of those with great need. To represent the region, we can adapt recent work on quality of life indicators and smart city data analytics.

Traditional measures of how our communities and people are faring are being augmented by emerging sources, such as location data from smart phones, which can tells us about how people move throughout the day.

Familiar metrics, such as unemployment rates, are masking under-employment and not clearly describing the situation for those who have been stood down temporarily or who have given up looking for work.

Infection rates and counts of jobs lost suggest the more visible and immediate impacts of COVID-19 and associated shutdowns. There are also long-term effects, with studies indicating that extended unemployment in early years can have effects throughout one's career.

Within the home, largely hidden impacts on mental health and levels of family violence need attention. Data indicates disproportionate effects on those who live alone or in poorly-resourced areas or are caring for dependent family members.

Particularly at risk are members of marginalised minorities, working mothers and other women, and those in younger age groups.

This difference in vulnerability among sectors, social groups, and communities make localised data essential.

This data can guide governments, community organisations and private enterprises to determine what to do for the people they serve as well as for their own staff. Businesses and individuals want to know how to make their savings last.

Such insight is particularly important when the light at the end of the tunnel seems to flicker with the threat of virus outbreaks and renewed lockdowns.

Fortunately, such 'transparency' is becoming more accessible. Location data from smart phones provided by Apple, Google and others has enabled assessing how effectively people are social distancing, as alluded to above. The HRF Centre has been analysing traffic volumes collated by Transport for NSW, which led to a write up in the Herald on when to shop in order to avoid the crowds on a busy Saturday.

However, too much data can alienate those who are not enamoured with numbers. The person in the street and the business operator may already be experiencing the effects that the data are meant to represent.

They can respond to such information with a shrug, explaining, "I know that is what's happening. I am living it."

It makes little sense to quote unemployment figures to the unemployed. To identify those facing adversity and those on the threshold of success, high-level decision-makers in the capital cities can benefit from newly available data, effectively presented.

Which indicators can best measure impacts, resilience and changes over time are contested. What works locally is often determined by local factors. That can stymie benchmarking between cities or regions.

Nonetheless, one can make provisional choices on what to measure, reflecting agreement here and now where we live and work. Then, update those choices as needed.

The HRF Centre has been seeking such agreement over the past two years through a range of projects, and we convened a 'data tent' group. This sharing of information across organisations, as noted above, is essential to make the region more transparent.

We have developed a dashboard including traffic volumes alongside COVID-19 infections, plus long-term trends in population growth, unemployment rates, housing costs and crime rates across different locations.

The importance of up-to-date, accessible and transparent information has been one lesson from the COVID-19 era. Recovery of both the economic and the social capital that the pandemic has claimed can be accelerated by a collaborative effort to create a visible region.

Opinion Piece by Will Rifkin appeared in the Newcastle Herald on 8 August 2020

Economic recovery stymied by a capital drought for small business

When a business hits tough times, there are often lifelines available to help them through. But many Australian businesses are currently facing significant hardship at the same time. So, who gets to borrow, and how can the system adapt to enable more businesses to ‘bounce back’ over time?

The familiar rules and relationships around lending have shifted. Today, tenants are negotiating with landlords, and businesses with their bank managers. The economic impacts of COVID-19 are turning our understanding of accepted credit terms and timeframes on their head – in both practical and moral terms.

Recent data from the Australian Bureau of Statistics (ABS) survey on Business Impacts of COVID-19 showed that 72 per cent of Australian businesses reported an expected decrease in cash flow over the coming two months.

That is a major concern because small businesses provide 35 per cent of Australia’s gross domestic product and employ 44 per cent of the workforce. They were already experiencing a soft economy, with a reported 10 per cent decline in January and February in the number small businesses registering for an ABN. Since COVID-19 hit Australia in February, new business registrations have fallen 43 per cent below the three-year average.

When this economic situation shifts toward recovery, we are likely to need new rules of engagement between small business and lenders. Who gets to borrow? What level of default will be tolerated? What security is sufficient, particularly for those with relatively little equity? Can repayments be delayed for years?

Economic recovery in Australia requires a serious rethink on the internal workings and culture of the lending sector, as well as the overarching regulations.

Until now, the risk of non-payment of a loan could be assessed based on formulas informed by history. It is imperative that these formulas are revisited to reflect the ‘new normal’. There needs to be a much greater appetite for risk in light of both a decline in the equity in the hands of many business operators and the uncertainty of the marketplace.

Lending is already a risk-based industry, and it seems destined to become more risk-aware in today’s fluid environment. Exacerbating factors include social distancing that can result in less of the face-to-face interaction that is essential to trust building. Changes of internal processes in a lending organisation can lead to shifts in lines of authority, which can in turn generate more conservative outcomes.

Any tightening within bank culture is likely to be felt most among those who have historically noted challenges in obtaining credit. These groups generally include small business owners and entrepreneurs, businesses operated by women, businesses operated by international migrants and businesses in regional areas.

The hurdles faced by small businesses seeking to borrow during the eventual upswing in the economy as COVID-19 lockdowns end can be as daunting as they have been during the ‘bust’. That is due to the rapidly changing context and associated uncertainty.

An example of the impact of such uncertainty occurred in Queensland’s Darling Downs during the coal seam gas construction period from 2011 to 2014. Landholders receiving a conduct and compensation agreement from a gas company could see an additional income stream of tens or hundreds of thousands of dollars per year guaranteed for the 20-30 year life of the gas wells on their property. This cash flow represented an opportunity to expand their enterprises. Banks responded by offering a few points off loan terms but no access to additional capital. As a result, land sales did not occur, and farms did not grow. Landholders voiced frustration with policies apparently formulated in Brisbane, Sydney or Melbourne that did not seem to take into account their local opportunities.

Decisions made in capital cities, predetermined formulas for assessing risk and timeframes for repayment may no longer be appropriate. They can result in a lack of capital for capable business operators whose operations are poised for growth. That would include small business owners, businesses operated by women and international migrants, and businesses in regional areas.

We must rethink credit and repayment timeframes to ensure that there is access to the resources needed to help kick-start Australia’s economy.

Will Rifkin, Director of Hunter Research Foundation Centre
21 June 2020

Beat the crowd, flatten the curve

One of the clearest signals that we are living in unusual times is the stillness of the streets. Since lock down, our cars have spent more time sitting idle. When we do head out, it is rare to sit in traffic for more than a minute or two – even in peak hour. But, are we doing enough to keep the curve representing COVID-19 infections as flat as possible?

Before COVID-19, on any given weekday, you had to build time into your journey to accommodate traffic and allow enough time to find a park. Even Saturdays could be pretty hectic on the roads, particularly around the middle of the day as we ferried kids around, ran errands or headed out for something to eat.

Figures show that traffic on a Saturday tends to peak between 11.30am and 1pm, as one might expect. Traffic counts on five intersections in Greater Newcastle provided by Transport for NSW show a bell-shaped curve with a peak at midday. The data show half of that volume of traffic at 9am and 6.30pm.

In the new world order with COVID-19 restrictions, the bell-shaped curve remains. However, the Saturday peak between 11.30am and 1.30pm has dropped by about 30 per cent.

As before, a trip at 9am on a Saturday has only about half the cars on the road as at midday. That suggests that there would be half the number of people in the supermarket, the hardware store, or wherever your Saturday travels might be taking you. As restrictions begin to ease, and we all start to venture out a little more, that is worth considering in your own strategy to avoid infection.

Before COVID-19, we all appreciated that it was better to get going early or head out later to beat the crowds. That attitude holds value now when the mantra is to maintain social distancing.

Restrictions may be lifting, but strict observation of social distancing remains an imperative if we are to continue to suppress the rate of infections. If you are among the 70 per cent of people who seem to be getting out and about on a Saturday, consider going a couple of hours earlier or a couple of hours later. Beat the crowd, and flatten the curve.

Will Rifkin, Director of the Hunter Research Foundation Centre
May 2020

COVID-19 and GFC: a tale of two crises

As the COVID-19 crisis unfolds, the economic implications are deepening. Disturbing reports of rising unemployment have sadly become commonplace in recent weeks.

A recurring observation by economists and officials is that the COVID-19 crisis has different economic implications than the global financial crisis (GFC). But what does that really mean?

As many of us know, the GFC began with the collapse of the US housing market. As the crisis escalated, households attempted to bring down their own levels of debt. This decline in household spending saw US economic activity grind to a halt as demand for goods and overall spending by the community sharply declined. Remember: one person’s spending is another’s income.

What started as a ripple ultimately turned into a tsunami that rolled across the entire globe.

We are facing another global economic shock spurred by COVID-19 – but the nature of this crisis differs from the GFC in two important areas.

First, the global economy is absorbing this shock from a less than robust base because many countries and households are still recovering from the GFC hit in 2007-08. That includes Australia as evidenced through the country’s persistent underemployment, job insecurity, rising wealth inequality and stagnant household consumption. More startling is that many countries within the Eurozone, including in Greece, Spain, Portugal and Italy, have not recovered from the GFC at all.

The second point of difference is that, through COVID-19, the global economy is feeling the combined effects of shocks to both supply and demand. By contrast, the GFC was primarily a ‘demand’ shock. Households and industry pulled back on consumption, and the economy suffered as a result.

Under COVID-19, demand for some goods is thriving to the point where supply cannot keep pace – think medical supplies and basic household items (toilet paper, cleaning products, pasta, etc.). Compounding this supply shock is that production worldwide has slowed significantly as a result of lock-downs of whole regions and countries – the World Trade Organisation has estimated that global trade flows will contract by 32%. (Source)

Unsurprisingly, economic uncertainty means that most people are also holding back their spending on ‘non-essential’ items until we are in safer waters. So, on the flipside of the supply shock, we are facing a reduction in demand for many goods and services, and that demand is what keeps the economy strong. Notably, history tells us that austerity does not work as a response – failing both during the Great Depression and in the aftermath of the GFC. While an inclination to sharply pull in our belts is understandable, it spells a potential increase in the duration and intensity of economic pain.

The swing of the pendulum between these supply and demand shocks needs to be balanced as quickly as possible to recalibrate the continuum and minimise the economic hit. That is what governments are working feverishly to address. The challenge is to fill the gap in aggregate spending and generate confidence to encourage broader, more sustained economic activity.

Our saving grace will be for the Federal Government to spend, and spend big for a prolonged period.

The Federal Government’s recent stimulus packages are a strong step in that direction, but will it be enough? The Rudd government injected around $40 billion in its initial response to the GFC. Given the current state of the Australian economy – with 50% of Australian businesses already reporting adverse impacts during March (Source) – a direct fiscal response is imperative, and that is what we are seeing, including this week’s welcome instalment of a $130 billion wage subsidy.

In designing and implementing the stimulus, a first priority has been a sugar hit through large cash injections to households and tax relief for businesses. Although both are helpful, such measures will only be effective if these dollars are channelled back into the economy through spending rather than pocketed to safeguard against an uncertain future. Our economy will only thrive when firms are hiring staff and investing in new assets. But hiring and buying will not occur without direct, sustained cash flow support to households over the longer term, as it is household demand for goods and services that underpins strong economic activity.

Admittedly, we are only at the start of this economic crisis, and the playbook is unwritten. Balancing the budget as the prevailing mantra has been parked for now as the Government throws as much as possible toward keeping the economy moving.

Yes, the path ahead is unknown. One certainty is that the effects of prolonged lock-downs will continue to reverberate across every home and business for months – and possibly years – to come. This recast future compels governments and indeed all sectors to rethink their approaches to sustainable economic management and growth.

George Pantelopoulos, Researcher, HRF Centre
11 April 2020

ECONOMIC UPDATE: The impact of COVID-19 on key sectors in the Hunter region.

With rolling shut downs being announced by state and federal governments, any business providing services or goods in-situ is now highly vulnerable to losing their customer base, cash-flow and ability to operate.

These kinds of jobs largely, but not exclusively, fall into three industries: retail trade, food and accommodation services, and arts and recreation services. They are some of the Hunter region’s largest employing industries, together representing around 62,000 people, or almost one in five jobs (18 per cent) in the region.

  • Retail trade: the Hunter’s third largest industry employs 31,600 people
  • Accommodation and food services: the region’s fourth largest employer, employs 26,500 persons
  • Arts and recreation services employs a further 3,500 people.

Given the size of these sectors, we can quickly start to see the significant economic impact already taking effect from necessary measures to battle the spread of COVID-19. In December 2019, 16,000 people were unemployed in the Hunter region, a fraction of the 62,000 people employed in the above sectors.

Even if one-third of the jobs in the three most impacted sectors are lost, the unemployment rate in the Hunter could go up to 10 per cent. That is more than double the unemployment rate of 4.5 per cent that the Hunter Research Foundation Centre reported last month.

By way of comparison, at the height of the wind-back in mining investment, the region’s unemployment peaked at 10.3 per cent in March 2015. When BHP closed in the late 1990s, the unemployment rate peaked in 1999 at 12 per cent.

Many of the workers in these industries are young. Nationally, almost half of the workers in the three identified sectors are under 30 years old, and 18 per cent are under 20 years old. Even in ordinary times, younger workers generally face double the unemployment rate of Hunter residents overall. Job losses can be particularly challenging for a group that struggles to find a foothold in the labour market and to sustain employment.

Nationally, it is important to note that 55 per cent of workers in these three sectors are female.

Income lost for these workers in moving from paid work to Newstart can be determined based on national average weekly earnings by industry. If a single person with no children was to rely solely on current income support from the government ($557.50/week), they would face a weekly wage loss of $255.50 per week (not including the one-off $750 Economic Support Payment) if they were previously employed in retail trade, for example.

Income disparities for families moving from paid work to Newstart are likely to be larger and more detrimental. When we consider that median rent for 2-bedroom house in Newcastle is $390 per week, we can see that rental stress and rent-arrears are likely to jump without income assistance or a ‘holiday’ on rental payments, which some are discussing.

In addition, lower wages of these workers will lead to a decrease in overall spending in the economy. And as one individual’s spending is another’s income, there is a flow-on effect to other businesses and industries. Hence, the income and job losses experienced most immediately by those who lost their job this week will be followed by what will likely be larger income losses across the entire economy.

More broadly, job losses and market fluctuations witnessed over the globe will play a role in investor confidence and the valuation of assets. Such movements may already be seeing lower activity and prices in the housing and construction sector, which has been softening over much of 2019. This decline flows on to a number of associated industries within the Hunter.

At this early stage in the crisis for our region, we are starting to see the impact of those sectors that will be hardest hit. Special attention needs to be paid to the potentially disproportionate effect on younger workers, both for their welfare and the possible flow-on effects to other sectors of the economy. 

Dr Anthea Bill, Lead Economist, HRF Centre
1 April 2020