Australia’s retail sales are still trending upwards, despite a small set back-  on seasonally adjusted figures – in December.

This suggests that the Australian economy is still gathering strength, however slowly.

The Bureau reports that, in trend terms, the nation’s retail sales rose by 0.2 per cent in December, despite a fall of 0.1 per cent, on seasonally adjusted figures.

The trend movement has now been steadily upwards since 2009.

So Australians are starting to spend again, even though they are still worried by Europe’s unresolved debt problems.

There is much, though, that was distinctly unseasonal, about the December retail sales figures.

On seasonally adjusted figures, for example, we  cut our spending on Christmas cake – and other food – by 0.7 per cent that month.

We cut our spending in restaurants, cafes and take away food stores, too, by 1.8 per cent.

We spent more, though, on clothes, shoes and accessories.

Even our long suffering Department Stores managed to chalk up higher sales in December, without putting on extra staff.

Job figures, that the Bureau had released earlier, showed that many young women missed out on their usual part time and casual shop assistant jobs, last year, in the pre-Christmas period.

Oddly, too, the Bureau reported that Australia’s resource rich States, Queensland and Western Australia – led the way down  in December’s retail sales – on seasonally adjusted estimates.

The Bureau, though, prefers its trend figures, even though they contain elements of averaging, from previous periods.

Journalists, who want nothing but the latest, have been difficult to persuade, on that matter.

This time, at least, though the Bureau has a good point.

The trend, in retail sales, is clearly upwards.

If  it continues, that will soon put new strength in the economy, as Australians, once again, start flashing their credit cards in the nation’s shops.

Job losses are spreading in Australia’s banking industry, as their customers remain cautious about taking out new loans.

Westpac is the latest to announce cut backs, admitting that 300-400 jobs will go.

The Prime Minister Julia Gillard refused to comment, saying the bank had not made a formal announcement when she met reporters.

However she insisted that the nation’s  finance industry has “a bright future.”

News of the planned Westpac cuts came shortly after the Australian Bureau of Statistics reported that home building approvals fell by 1 per cent in December.

The Housing Industry Association said approvals  fell three times in the last four months of last year.

The association’s chief economist, Harley Dale, urged the Reserve Bank to lower interest rates, yet again, when its board meets next Tuesday.

Otherwise, he warned,  housing starts will fall to a level below that experienced during the depth of the global financial crisis.

Dr Dale also urged Australia’s banks to pass on any rate cut, in full.

There have been signs that at least some of the banks may be reluctant to do that, even though banking profits are still strong.

Ms Gillard admitted that job losses present family problems..

“…. for anybody to lose their job or to be confronted with a redundancy is a very tough moment for them and for their family.

“… they have all of our thoughts and all of our support,” she added.

But she  was optimistic.

“…when we look at the future, we can see a bright future for financial services,” Ms Gillard said.

“We live in a region which is growing. “

The  middle classes in both China and India are growing.

“ So I believe our financial services sector has a very bright outlook,”

However the Finance Sector Union described the latest job cuts as “a disgrace.”

Its national secretary Leon Carter told the ABC:”Times are tough out there.

“… the only people who aren’t doing it tough are big banks like Westpac that are making multi-billion-dollar annual profits.”

Australia’s trade surplus rose $366 million in December, to $1.709 trillion, the Australian Bureau of Statistics reports

House prices are still falling in many parts of Australia – but the decline is not as steep as it was – and rents are starting to rise again.

This scene is reflected in two new reports.

Another report, by the Housing Industry Association,  also showed that new home sales fell by 4.9 per cent in December.

The Bureau of Statistics reports that, on average, the price of established homes in the nation’s capitals fell by 4.8 per cent last year.

That included a fall of 1 per cent in the final three months of the year.

The falls, throughout 2011, ranged from a high of 6.7 per cent in Brisbane, to a low of 2.6 per cent in Canberra.

The comparable falls in other capitals were Sydney 2.7  per cent,  Melbourne 6.1 per cent, Adelaide 6.4 per cent, Perth 4.9 per cent, Hobart 4 per cent and Darwin 5.4 per cent.

Meanwhile, the National Australia Bank reported that its property index had turned “slightly positive” in the December quarter.

It said this has happened as “the pace of national house price decline slows and rental growth accelerates.”

The bank said this  followed two quarters of  “negative results.”

“Although  conditions improved in all States, there is considerable variation in State performance,” the bank said.

Conditions are still weakest in Victoria and Queensland and strongest in New South Wales and Western Australia.

“National house prices are still falling, but the pace of decline slowed” to 2 per cent in the December quarter from 2.4 per cent the previous quarter.

The bank said it expects house prices to fall by another 0.54 per cent in 2012.

Investment is still booming, even though several other parts of the Australian economy are flat.

The latest issue of the Deloitte Access Economics investment monitor shows that $415.4 billion worth of  “definite” projects are now in the nation’s investment queue.

That’s a 43 per cent rise in the 12 months to the end of December..

This matters.

“The value of projects under way provides a healthy buffer against a potential global slowdown in 2012,” the authors of the study say.

“Indeed it is already providing the bulk of growth for the Australian economy at the moment,” they add.

The authors also recalled  the famous wartime “Brisbane Line,” a policy which would have seen Australia abandon all of its territory north of the Queensland capital, if Japan had launched a full scale invasion.

“Fast forward to today and the Brisbane Line could be used to characterise the Australian economy,” they say.

“Today it is economic activity to the north and west which is defining Australia’s prospects…” they add.

That area provides just 20 per cent of Australia’s jobs.

“Yet when it comes to major investment projects under construction, that part of Australia….dominates, with $161.3 billion of investments under construction, or 46 per cent of the total,” the study concludes.

Mining projects dominate.

The authors also say that  the present investment surge is not likely to ease any time soon.

Instead, they predict that investment levels will continue rising over 2011-12 and the two following  years.

“This is very much driven by the healthy pipeline of investment projects awaiting approval,” they say.

The authors say, too, that spending on flood reconstruction and the National Broadband Network would also continue for some time yet.

Australians still prefer to shop at their local butcher’s, when they are buying fresh meat.

But the butchers’ lead over their major rivals, the local supermarkets, is shrinking.

That’s one of the retail trends identified in a new report by the Roy Morgan organisation.

The report shines a spotlight on the $76 billion Australians spend each  year in their local supermarkets , food and grocery stores.

It also shows that Australians still like their local fruit and vegetable stores, but adds that their future is now very much in doubt.

What, though, of the big boys?

The Roy Morgan Organisation says its report shows Woolworths ahead of both Coles and smaller supermarket rivals IGA and Aldi.

But Coles has been fighting back.

“In market share overall, although (Woolworths”) lead in many ‘fresh food’ areas such as bread, and fruit and vegetables has been shrinking in recent months due to a resurgent Coles,” the report says..

What, though, of our  bakers?

The report also says that the big  supermarkets are now leading fresh bread stores such as Bakers Delight and Brumby’s.

“In fresh meat we see butchers still leading the way, but only by a small margin,” the report adds.

Trend data, though, reflects the dominance  of Coles and Woolworths in the fresh delicatessen market.

Australia’s Foreign Minister, Kevin Rudd, has identified trade liberalisation as the next step, in dealing with the European debt crisis.

So far, austerity measures have dominated programs that Germany and other strong European countries have urged on weaker EU members, like Greece and Italy.

That has led to historically high levels of unemployment, riots and political instability in those countries.

Trade liberalisation measures that Australia took, under the Keating government did much to strengthen its economy.

Mr Rudd was interviewed, on Sky Television, in Davos, where he has been attending the World Economic Forum.

He said delegates, at the forum, had arrived pessimistic about prospects for dealing with Europe’s debt problems.

But they had left in a spirit that he called “small o optimism.”

Talk of trade liberalisation had helped to turn that about.

“ I think trade liberalisation stares everybody in the face as the obvious next step to go, subject to political will,” Mr Rudd said.

“… it doesn’t cost your budgets

“it’s not relevant to where monetary policy may go.

“ and  (it’s) a huge psychological shot in the arm in global demand, Mr Rudd declared.

He acknowledged, though, that trade liberalisation can be politically difficult, saying progress, in that area, would be “subject to political will.”

Mr Rudd said China’s growth is now driving economies in the Asian region, including that of Australia.

But Europe is still important.

“… let’s be very frank about it.

“If Europe is going bad, it affects global demand and therefore markets in our part of the world, “ Mr Rudd said.

Besides, he added…” Europe is a huge source of global capital investment.”

Thousands of young women, who had been working part time, lost their jobs last month, as Australia’s weak domestic economy shook the nation’s labour market.

The Bureau of Statistics reports that 53,700 part time jobs were lost in December, as a result of “weaker than usual growth” in the pre-Christmas period.

It said the part time job losses had been “particularly noticeable for women aged 15 to 24.”

Many had been working in Australia’s shops, which have been reporting poor trade.

However, the Bureau’s report wasn’t all bad news.

The nation’s unemployment rate dropped to 5.2 per cent in December from 5.3 per cent in November.

And the big loss, of part time jobs, was partly offset by a rise of 24,500 in full time employment.

However that still left Australia with 29,300 fewer jobs on its books

The Bureau also reported that the number of Australians who are unemployed fell by 3,800 in December to 629,900.

It said, too, that an extra 5.6 million hours were worked that month.

Australia’s critically important work-force participation rate, though, eased by 0.3 percentage points to 65.2 per cent.

The unemployment rate  for Australian men now stands at 5 per cent.

The comparable figure, for women, is 5.5 per cent.

All of these figures are seasonally adjusted.

For years, China has deliberately kept its currency undervalued.

So Chinese products have been cheap in world markets.

The United States protested vigorously, but without effect.

That’s how China became the workshop of the world, at the expense of manufacturers in other countries.

It’s the base on which China’s prosperity has been built.

This is an old story, of course.

But it’s is worth retelling because China is, once again, facing allegations of cheating, with fresh offences against the rules of free trade.

There have been persistent reports that Australia’s miners are being told – by China – that they must buy Chinese mining equipment, to get contracts to supply iron ore to that country.

Australia’s Prime Minister, Julia Gillard, admits that these reports are still “anecdotal.”

But she says, if they are correct, China would be in clear breach of the rules of international trading.

Speaking to reporters,  while visiting the Ford plant in Broadmeadows this morning, Ms Gillard vowed that the Australian government would vigorously pursue the matter.

“I am very concerned about the anecdotal reports today that there is a requirement that Australian firms are not used in mining,” Ms Gillard said.

“Any clear evidence of this will be taken by us to the World Trade Organisation, because it’s in breach of the rules and it’s not giving Aussie manufacturers a fair go.”

This is no light threat.

China is, after all, Australia’s biggest customer.

And it is trade with China, above all, that kept Australia – conspicuously – out of recession, in the wake of the global financial crisis.

Ms Gillard insists, though, that the new threat China is now said to be making, if true, would be unfair to Australian companies, that make mining equipment.

China’s record in such matters, though, is not encouraging.

Austerity – alone – won’t fix the European debt crisis.

The Italian Prime Minister, Mario Monti, is right about that.

And Angela Merkel’s advocacy of a tighter European currency union, could well be counterproductive.

The German and Italian  leaders were, of course,  responding to Standard and Poors’ dramatic decision to downgrade the credit ratings of nine Euro countries.

That decision, which some will see as arrogant, has provided at least one useful service.

It has precipitated the now urgent debate on what should be done about the European debt crisis.

Urgent  because that crisis is presently the biggest single threat to global financial stability.

The Merkel argument is, superficially, attractive.

If a family gets, too heavily, into debt, it might well need to cut spending and start saving, perhaps by paying off some of that debt.

But as the British economist, John Maynard Keynes, pointed out, during the Great Depression of the 1930s, that analogy doesn’t work all that well, on a national scale.

That is seen, most easily, when we look at jobs.

Spending cuts, at times like these, also cut jobs, pushing up unemployment, from already high levels.

That, in turn, necessarily cuts tax flows, making it harder for governments to produce surpluses.

That is, to save.

Mrs Merkel wants a hard Euro.

For Italy, Greece and Portugal, that would inevitably mean even higher unemployment.

Mrs Merkel would, effectively, sustain a powerful Euro as something very like the old gold standard, of the 1930s.

Tight standards, like that, didn’t work then.

They won’t work, now.

What is needed, instead, is a mixed approach, combining sophisticated monetary and fiscal polices,  to promote stability and prosperity.

Those who don’t recognise the political dangers of high unemployment haven’t been reading their history books.

And the European Union was meant,  at its inception, to avoid the political conflicts that have, too often, led to wars, in the past.

It’s flexibility, not rigidity, that is needed now.

So how dangerous is S&Ps’ dramatic announcement?

Why should the world take any notice of it, anyway?

After all, as the US economist Paul Krugman points out, this ratings agency – and others like it – once gave high ratings to mortgage back assets that are now “toxic waste.”

(Yes, that includes Lehman Brothers).

Well, one thing that we should note is that the US government is still able to borrow cheaply, even though S&P downgraded its debt rating, last August.

Indeed, the rates at which it borrows went down, after that downgrade.

This suggests, at least,  that global investors are looking at the real world, as well as ratings.

That’s always a hopeful sign.

Besides, as others have noted, even ratings can be assessed too simply.

Krugman, for example, points out in his latest blog, that even S&P, itself,  has acknowledged that austerity, alone, won’t be enough to set Europe right.

He quotes an S&P publication which, in part, says: “… we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues.”

We agree.