TERRY MCCRANN

First we woke up to the ‘horror night’ on Wall St, then just before lunch we got the official data that blew the Aussie growth story out of the water. Happy – end of the world – New Year.

Yes, the Dow plunged 800 points. But there’s a ‘lot of plunging’ available in a Dow that was pushing 26,000 points – I can remember when a 3000 Dow was boom time – thanks to The Donald 1.0 and The Donald 2.0.

The ‘first version’ of President Trump was his election in November 2016 and his policy delivery – most critically the slashing of both personal and corporate tax rates – which sent Wall St rocketing up nearly 50 per cent to a new all-time by the start of this year.

It also was the only reason our market managed to – just – stagger off the floor through that period.

Nothing policy-like was happening here to do anything for our market; and in any event we just don’t have the 21st century stocks and the businesses – the Facebooks, Googles, Amazons and Apples – anyway.

The ‘second version’ of President Trump was his supposed trade deal last week with China’s President Xi. When the ‘big two’ of the global economy seemed to kiss and make up, the Dow went rocketing up more than 600 points and further rises followed.

Plus, the ‘other guy’, the only one that might be as influential as The Donald, Fed head Jerome Powell, seemed to blink when he seemed to say that he might hold off the official interest rate rises that could prove a market killer.

So the last week of November was a ‘good news week’. The first week of December suddenly seemed to turn into a ‘bad news week’: the ‘big two kiss’ suddenly looked more an air kiss than a truly, madly, passionate one. Maybe the trade war’s still happening.

Well, I would argue, as I have been doing all year, that after The Donald Version 1.0 delivered trillions of dollars of paper profits to not just US investors but global investors, and real jobs to millions of Americans, we would move into a time of great volatility.

It’s just as pointless to get over-enthusiastic about big single-day surges on Wall St as it is to over-gloom on big one day slumps.

But Wall St was always headed down from last January’s peak and still is through 2019, as the Fed does keep lifting US interest rates and slowly but surely sucks its excess liquidity out of the economy and out of markets.

The Fed will keep lifting until it stops. Unlike our Reserve Bank, it will lift its rate at its December meeting, obviously the last for the year, and just as obviously provided there has not been some catastrophic event over the next two weeks.

But then, just like our RBA, it will spend January both to see and indeed feel what is happening in real time, while constructing an understanding of how 2019 might develop. The Fed meets first right at the end of January, our RBA follows a week later.

When and if the Fed stops hiking – whether in 2019 or 2020 – it will be because the US economy has slowed or worse. That will not be a ‘halleluiah, the good times are back again’ moment.

Yesterday I cautioned that the steady RBA rate decision was far less significant than the developing credit squeeze because the big four banks have been rendered catatonic by the Royal Commission.

You might say they’ve been frozen in the pleading glare of counsel assisting, Rowena Orr QC, and are now petrified at making a ‘bad’ loan – so they’ve all but slammed the till on small and medium business and to a slightly lesser extent property investors.

A careful parsing of the words chosen by RBA governor Philip Lowe in announcing a no ratechange told us that the RBA was alert but not yet alarmed over the credit squeeze. It was not signalling the economy was heading over a creditsqueezed cliff.

Exactly the same applies to the ‘shock’ news that overall growth in the economy came in at just 0.3 per cent in the September quarter. We should be alert but not – yet? - alarmed, just like the RBA.

That’s an annualised growth rate of just 1.2 per cent – a recessionary edgeteetering level. Thanks to stronger growth mid-year, the growth over the year to the September quarter was still a respectable 2.8 per cent.

Apart from as treasurer Josh Frydenberg pointed out, business investment was somewhat artificially hit by the completion of a big gas project in the previous quarter, consumer spending – easily and always the biggest component in the economy – was that weakish 0.3 per cent (making a moderate 2.5 per cent for the year).

Always the first big point: a single quarter numbers are dodgy. You are best to put two quarters together. That gives us a more respectable 2.4 per cent annualised growth rate over the June-September half.

That’s still not great, and it is a statistically – and realworld – difference to the 3.5 per cent the RBA forecast for the December year which is about to end and even the slightly lower 3.25 per cent for 2019, that it predicted just a month ago.

A big message to take out is that what happens to our economy in 2019 now pivots critically and almost entirely on what happens to jobs.

Consumers are stretched. Wages are growing at a modest pace, household debt and repayments are high – we are basically chewing through our incomes and having little left to save.

We could see a seminal shift in the RBA’s rhetoric at its first meeting back in February – not only formally burying the hike that’s been ‘somewhere in the future’ for two years now, but opening the door in the opposite direction.

A CAREFUL PARSING OF THE WORDS CHOSEN BY RBA GOVERNOR PHILIP LOWE IN ANNOUNCING A NO RATECHANGE TOLD US THAT THE RBA WAS ALERT BUT NOT YET ALARMED OVER THE CREDIT SQUEEZE.