Experts in leadership (and/or seafood) have told us over the years that a fish rots from the head down. It’s a warning to bosses of businesses that if their business fails, they should look at themselves first! The saying has timely relevance as we learn business failures in NSW are up 40% in a year, while unemployment has risen by 33%.

The SMH’s Matt Wade tells us that “…small firms in NSW have been hit disproportionately hard after two years of cost-of-living pressures.” While this looks like a NSW-centric story, given the economic leadership role that the biggest state economy in Australia, plays, other states and their populations couldn’t be comfortable that the most powerful growth engine of the national economy could be faltering. Importantly, this can’t be a revelation that the Reserve Bank can easily ignore.

This disclosure comes at a time when economists are engaging in their occasional squabbles over forecasting our economy and whose take on that economy is the most prophetic. In fact, the most recent backbiting has actually been focused on “false prophets”, which followed a speech by the Deputy Governor of the RBA, Andrew Hauser, who warned us about being misled by these unreliable soothsayers of an economics kind.

In case you missed it, Hauser is trying to hose down those predictors who think a rate cut this year is possible or even probable. Right now, both the economics teams at the CBA and Westpac think a Cup Day cut is possible, while more think it will be February next year.

Ultimately, economic data in coming months will determine what the RBA does but the likes of Steve Koukoulas, MD of Market Economics and former economic adviser to PM Julia Gillard and former Treasury boffin, recently took to Linkedin to return fire on Mr Hauser, accusing the RBA of ignoring “accurate prophets again”. Ouch!

As I’ve said, what’s going to be interesting to see is the accumulation of economic data in coming months. This small business failure data does help build a case for both not raising rates further and for thinking about a cut or two.

This is what Matt Wade revealed in a nutshell:

1. Small firms in NSW have been hit disproportionately hard after two years of cost-of-living pressures.
2. According to ASIC, there were 4,634 insolvencies in 2023-24, which was 41% higher than the previous year and up by 140% compared to 2021-22.
3. Construction and hospitality have the most failures.
4. NSW firms made up 43% of insolvencies in Australia last financial year.
5. There is a higher proportion of employees in NSW working in the private sector compared to the other states and that can lead to greater jobless rates in that state.
6. The state jobless rate is 4% but Sydney is at 4.2% while the rest of NSW is at 3.3%!
7. The unemployment rate in South-West Sydney was a big 5.3%, while the northern beaches and Sutherland were at 2.4%!
8. CreditorWatch says six of Australia’s top 10 districts for rates of business failure during the past year were in Sydney’s western suburbs.

This is an economic revelation that will reinforce the Kouk’s view that the RBA should be careful that if they keep rates too high for too long, then one day they might be tagged as the false prophet who condemned too many businesses and employees to the economic scrapheap because of forecasting incompetence.

It's a tough job but the RBA has to do it, and we’d prefer they get it right!