The small quarterly increase in personal insolvencies in Newcastle, identified in the Australian Financial Security Authority (AFSA) quarterly statistics for September, should not be cause for concern.
There’s no doubt an increase in personal insolvencies is usually followed by an increase in business failure. This is because businesses facing difficult times tend to restructure their human resource needs first, to match declining activity and HR is often a key often expense driver. Following on, most bankruptcies are a result of unemployment, followed closely by an excessive use of credit, which go hand in hand.
However, the regional quarterly statistics can be quite confusing, possibly misleading, due to the small numbers included and also regional idiosyncrasies impacting on the statistics. It’s therefore worthwhile looking also at the national trend.
In the last three full financial years, personal insolvencies fell from 30,822 in 2013 to 28,820 in 2015. And so too have corporate insolvencies in the same period.
Furthermore, unemployment figures fell from 6.2% to 5.9% nationally in the October 2015 statistics, a trend reflected in recent data published by the Hunter Research Foundation. Therefore we would expect this improvement in employment conditions to translate to a lower personal insolvency count in following quarters.
Our domestic economy seems to be smoothly transitioning from the mining boom on the back of strong housing construction and investment, and now a lower exchange rate is assisting export and import-competing industries.
While our interest rates stay low and the remains at a competitive exchange rate, the trend in declining bankruptcies nationally should continue for this financial year.
So, even though these latest statistics identify a 0.6% increase in personal insolvencies across the state on the same quarter for 2014, is this cause for concern? Not just yet; but it’s not time for complacency.
There are some counterproductive forces at work in the economy such as the slow-down in China, low consumer confidence and sluggish business investment, which will could adversely affect bankruptcy numbers next financial year, so watch this space.
Paul Gidley is a Director at Shaw Gidley Insolvency and Reconstruction and has more than two decades of experience in corporate and personal insolvency and reconstruction across a broad range of industries and commercial sectors.
He holds has a Bachelor of Commerce, a Masters of Business Administration, and is both a Chartered and Certified Practicing Accountant. Paul is also a member of the Australian Restructuring Insolvency & Turnaround Association.