It has been a stunning week for the Australian economy — consumer sentiment up 23 per cent in two months; housing loans bouncing to new highs; and then yesterday a continuation of Australia’s mild labour retrenchment.

I spent some time yesterday with the CEO of one of our largest retailers and he explained everything with a remarkable graph from the last recession. It showed that department store sales started rising strongly well before unemployment stopped going up.

Basically his experience showed that once 90 per cent or more of the workforce are confident that their own job is safe, they start spending again — they don’t wait for those who are unemployed to start getting jobs again.

That especially applies to women and clothes, which might sound sexist, but there it is — facts are facts. It seems women can deny themselves shoes and clothes for only so long; as soon as it’s safe to go back into the stores, they’re there, plastic drawn.

And there is a tipping point at which this occurs well before the unemployment rate peaks.

I don’t know whether we have reached that tipping point already, but I doubt it. However the fact is that retail sales are rising again and so is consumer sentiment, which obviously reflects confidence among the 10,762,500 Australians who still have a job that they will keep them.

That’s despite the fact that the government is predicting that unemployment will reach 8.5 per cent, which means another 300,000 people will lose their jobs. It’s just that everyone thinks it won’t be them.

In any case, a year seems about right. In the last recession, department stores sales were rising strongly in June 1991, but unemployment didn’t stop rising until the second half of 1992.

The retailer I spoke to yesterday suggested that the actions being ostentatiously announced by companies to retain staff, such as pay freezes, nine day fortnights and shift reductions, are having a positive, not negative, effect on sentiment.

That’s because the staff of those companies feel that everything is being done to keep them in work, and that the minor pain in lower wages will be worthwhile.

This is an important insight into what’s happening in the economy. We saw yesterday that full-time jobs in June fell 21,900, while part-time jobs rose by 400. That is all about a reduction in hours worked — more and more staff are tipping below the threshold for being described by the ABS as “full time”.

The fact that the statisticians now mark them down as part time, not full time, is neither here nor there — they still have a job, and they can still pay the mortgage because the interest rate has fallen 3.75 per cent. Phew.