The recession that never was: Kohler

It’s not too hard to pick holes in yesterday’s national accounts, which I’ll prove in a moment.

But first, let’s just enjoy being on the other side of that nice Gore Vidal quote: “Whenever a friend succeeds a little something in me dies.”

We’re the friend; America is Gore Vidal looking sourly across the Pacific with unemployment of 9.4% and a truly horrible housing market. Oh, how sweet it is.

As for the actual GDP… Australia’s lack of recession is entirely due to fiscal and monetary stimulus, here and in China.

Does that make it less of a non-recession? No, but it does make it a bit like when the personal trainer is helping to hold the barbell above your chest on the bench-press. When he lets go, do your feeble arms buckle, with the weight hitting your chest to the sound of snapping ribs?

First, China – Annette Beacher of TD Securities included a fascinating graph in her note to clients yesterday, charting Australian GDP with Chinese imports. They’re a perfect match.

According to the national accounts, export volumes rose 1% in the quarter, while the value of exports fell 7.9%. That is, prices fell but we sold more stuff.

This happened despite a massive decline in growth and exports among our trading partners, and the reason our export volumes held up seems to be that China diverted a large part of its government stimulus spending to building strategic stockpiles of raw materials.

When announcing its full year profit two weeks ago, BHP Billiton said: “The commodity re-stocking in China now appears largely complete, with substantial inventory-build in specific commodities over the last three months at end-user levels and in strategic stockpiles.”

In other words, cross that one off. Demand from China now depends on demand for China (that is, its exports, mainly to the US). At this stage the news out of the US is good, and the recession there seems to be over, but there are strong headwinds for its recovery.

Meanwhile Gerard Minack of Morgan Stanley made the good point yesterday that the high level of household debt in Australia meant that the Reserve Bank’s rate cuts had a huge impact on household finances – much more than usual. That will soon be reversed as well.

And then there’s the fiscal stimulus. There were four relevant parts to this: cash payments, which bolstered consumption spending, accelerated depreciation for business investment, the turbo-charged first home buyers’ grant, which put a rocket under the construction sector (now being replaced by the schools program) and the Government guarantee of bank funding.

Shadow Treasurer Joe Hockey last night said the Government over-reacted, and that things were never going to be that bad, but he doesn’t know that.

A relative of mine recently had a cancer scare: she had radical surgery, chemotherapy and radiotherapy. Over-reaction? Maybe, but it’s better than being dead.

And it seems to me that a big part of the impact of the stimulus was psychological.

In some ways the most important reason for Australia’s escape from recession has been the fact that there was not the same wave of retrenchments that hit the labour market in 1990.

Talking to CEOs, it’s clear there was a sense that they were not alone in the crisis – that the Government was clearly prepared to do whatever it took to prevent a big increase in unemployment, including artificially preserving credit flows to specific industries, protecting their shares from short selling, providing funding guarantees to banks, handing out cash for their customers to spend in the stores – anything at all.

It was a huge psychological boost, and it meant that Australian CEOs held off on sackings that their counterparts in the US were forced into by the near-total collapse of credit last year and gloom about the state of public finances in the US (which were dreadful to begin with, unlike Australia’s).

There has been plenty of cost-cutting here, but company executives have found other ways to do it. Would that have happened if the cost of the stimulus, and therefore Government debt, had been smaller? We’ll never know.

This article first appeared on Business Spectator.