Is Australia Headed For Recession Roger Mendelson The business community doesn't need anyone to tell it what it already knows: if it looks like a recession, feels like a recession and even tastes like one, then the chances are it is one. Best to forget the main economic indicators - seasonally adjusted employment figures and business confidence surveys are not accurate or timely enough to tell subcontractors and smaller businesses the economic state of play. Nor will you find the real state of Australia's small business health in the ups and downs of the sharemarket or the daily fortunes of listed companies. You need to look at the micro-stories. "We have to start measuring the small business sector in a different way," says Peter Strong, executive director of the Small Business Council of Australia. People say it's a bad Christmas and then it turns out we have a great January. Consumers are geared now to January - not Christmas. The old business cycles are no longer relevant. The internet has changed everything. One of the lesser-utilised pointers to business health is the number of insolvencies and, allied to this, the number of claims that businesses make on their credit insurance. The more formal ASIC figures on businesses in administration account only for those companies officially wound up, which tends to be only a small percentage of total insolvencies. Debt collection agency Prushka, with 60,000 clients nationwide, recently published figures indicating that nearly half the statutory demands for payment tendered by its clients in the past 12 months have gone unpaid. In the 12 months previously, the figure was just 20 per cent. Many creditors are now happy to receive just 3 per cent of what's owed, whereas 12 months before they were receiving closer to 20 per cent. Prushka's owner, Roger Mendelson, says the figures tell you more than unemployment figures or tax collection numbers possibly could. "By the time we receive those numbers it's a long way past what has been happening," Mendelson says. The situation as we see it now is dire. Mendelson says the agency is growing by about 10 new customers a day and yet the amount the agency is collecting is rapidly diminishing. "The conclusion is obvious," he says. The past financial year has been very tough for the SME sector. Like many others, Mendelson is not quite calling it a recession. He believes it is a combination of a recession and structural change that is ricocheting across smaller businesses that hasn't been seen since the early 1990s. Trying to be positive, he says that eventually it will lead to productivity improvements. People have become hard-hearted - they are putting suppliers under the pumps and they are laying off people. They're doing it just to survive," he says. Kirk Cheesman, managing director of National Credit Insurance (Brokers) says NCIB's most recent data points to what he terms "a borderline recession." While the first quarter of this year showed only steady claims for trade credit insurance, debt collection activity rose a startling 27 per cent. "Our quarterly risk index - which factors in claims data, collections activity and credit limit decisions made by financial institutions - is bordering on the red zone," says Cheesman. "Retail is struggling, as well as the usual suspects in the building industry," he says. This includes electrical contractors, steelmakers, plumbers, builders and construction companies. Cheesman says much of the blame can be laid at the feet of the mining industry. The big miners are just not going ahead with the big projects. They're not building the extra part of the mine and the services which support that have been forced to contract quickly," he says. One sector said to be in serious trouble is the top city law firms and accountants. One source, from a mid-sized accountancy firm in the Sydney CBD, said the big professional firms were not publicly acknowledging what everyone knew. "The big-end-of-town recession is on," he says. "It's got nothing to do with the dollar or the mining industry, nor all that nonsense about pre-election worries," he says. They need mergers and acquisitions work - they need big ticket items to pay their bills and there's just none of that around. It's the mid to smaller accountancy and law firms which are doing OK - they have plenty of compliance work to go on with. Some industries are recession-proof, others not. Private schools and restaurants are feeling the pinch from large corporate lay-offs, while other kinds of businesses, specifically nursing homes and medical equipment suppliers, are doing well. "The population is ageing and nursing homes - as well as medical companies which service old people - are doing extremely well," he says. Industrial construction is also booming. Companies are moving premises including admin from the city because rents have become prohibitive. With industries relocating, there is also a boom in outer-suburb warehousing.