More bad economic news was released yesterday, again showing that Bermuda is still mired in recession.

Retail sales fell by 5.8 percent in nominal terms and by 8.5 percent in real terms once inflation was taken into account. This marks the 17th consecutive month in which the volume of retail sales have fallen.

The Retail Spending Report says it covers about 70 percent of all retail activity on the Island, so that means that the $5.2 million drop in sales equates to an overall fall in retail sales of around $7.5 million compared to a year ago. That's a substantial amount of money for one month and follows similar monthly declines for the last year, so it is reasonable to assume that some $80 million or more has simply gone from the economy. That's a lot of liquidity, in economic terms. In layman's terms, that's a lot of jobs and income that has disappeared.

The surprise is that there aren't more businesses closing, but many will be holding on for Christmas in the hope that will tide them over into the first part of 2011.

There are several reasons for this drop. One must be the decline in the working population. The number of jobs fell in 2009 and these job losses must have accelerated in 2010. This newspaper's October poll which showed that one in ten respondents had lost a job in the last 12 months graphically showed that problem. For Bermudians who have lost jobs, that simply means they have vastly less money to spend. Financial assistance and so on will cushion the blow, but the inevitable economic result has drastically curtailed spending. Expatriates who lose their jobs simply leave, taking the incomes with them. Often when a Bermudian or non-Bermudian leaves a job, they are simply not replaced, thus taking more income out of the community.

The second reason for the spending drop is confidence. When jobs are being lost, hours are being reduced and pay is being frozen, it is inevitable that there will be less confidence in the future, and the human instinct is to cut spending, to save money and to be extremely careful. That this tends to be self-perpetuating and a spiral is clear. Reduced confidence leads to less spending which leads to a weakening economy which leads to reduced confidence which leads to less spending and so on.

Again, a Royal Gazette poll showed that in October. That poll showed that only 15 percent of those polled had confidence in the direction of the economy while 37 percent were not confident, with almost half of that group saying they were not at all confident.

If there is any good news, that is that showed a reduction in the number of people lacking confidence in the economy, which had been at 48 percent in previous polls in June and March. However, the number of people with confidence slipped as well, from 18 percent in June and 16 percent in March.

Bermuda's ability to recover from the recession depends on investment and spending, and this can only happen when there is confidence that the Island's two foreign exchange earners, international business and tourism, are recovering. That will require a sustained improvement in tourism arrivals and spending, and demonstrable signs that international companies are moving and growing in Bermuda. To date, international companies seem to be relatively stable, but this hides the slow drip of redundancies and moves to Switzerland and elsewhere.

What is required is a sustained effort to show that these sorts of businesses are welcome here and that Bermuda is competitive enough to make it worthwhile for them to grow with the kind of quality jobs that Bermuda needs. Similarly in tourism, Bermuda must show that it can provide superior service and competitive prices in order to make tourism viable again.

On that note, it was worrying that the inflation rate rose to 3.4 percent, the highest in 18 months, even if it was largely driven by the cost of overseas travel. Bermuda simply cannot afford higher inflation in a shrinking economy.