CommSec: Population growth hits 5-year low and cash is now king

Demographic data; Financial Accounts

• Australia’s population grew by 69,703 people over the December quarter to 22,477,378. Annual population growth slowed from 1.57 per cent to 1.47 per cent – the weakest growth rate in almost five years.
• Despite businesses crying out for skilled migration, the Government’s reduction in the skilled migrant intake meant that in-bound migration hit a near 4-year low in 2010. Over 2010, 171,100 migrants came to Australia.
• There were 297,900 babies born in 2010 – holding just shy of the highest reading since quarterly records began 28 years ago (303,500 in March 2010).
• The financial wealth of Australians hit 3-year highs in the March quarter. But consumers and businesses are increasingly holding assets in cash or deposits.

What does it all mean?

• The Federal Government must shoulder the blame for the sharp slowdown in Australia’s population growth over the past year. Despite persistent calls for skilled migrants, the Government wound back the skilled migrant intake,exacerbating the tightness of the job market and contributing to the slowdown in the economy.
• In 2008, almost 316,000 migrants came to our shores but this slowed to 264,000 in 2009 and to a four-year low of 171,000 in 2010. The reduced number of migrants has contributed to upward pressure on wages and led to reduced demand for housing and slower retail sales. While the migrant intake has been lifted for the coming year,the question is whether it is sufficient. In order to cap wage growth, supply of labour has to keep pace with demand. The best way of ensuring this in the short-term is skilled migration as up-training of Australian jobless takes time. Further, there are doubts that this up-training can be successful in meeting the specific skilled labour shortages across the country.
• The Reserve Bank has been polite in pointing to the need for increased labour supply to meet higher demands. Arguably it should be more forceful in warning that if migration isn’t lifted, the risk is that interest rates will need to rise.
• Cash is king. Australia’s increasingly cautious consumers and businesses are continuing to hold their wealth in cash or bank deposits. And Australian companies are well into the black, with non-equity assets a record $130 billion more than the level of outstanding loans. The environment is much more akin to the 1950s or 1960s when people chose to live within their means and keep borrowings at low levels in relation to assets.
• Foreigners are losing patience with Australia, selling down their holdings of Australian shares in the March quarter. Our high dollar combined with mooted taxes on carbon emissions and mining profits are spooking foreign investors. Clearly this is a wake-up call for the Federal Government.

What do the figures show?

Population Statistics:

• Australia’s population expanded by 325,469 people over 2010 to 22,477,378 people. Overall, Australia’s population growth rate eased from 1.57 per cent to a five-year low of 1.47 per cent. Population growth had hit a40-year high of 2.20 per cent in the year to December 2008.
• A total of 171,100 people migrated to Australia over 2010, the lowest annual total in over four years (since the year to September 2006). The record high was 315,700 in-bound migrants over the year to December 2008.
• There were 297,900 babies born in 2010, just shy of the record 303,500 births in the year to March 2010.
• Population growth eased in all states and territories except the ACT in the December quarter. Over the past year population growth was fastest in Western Australia (2.09 per cent), followed by ACT (1.95 per cent), Queensland(1.70 per cent), Victoria (1.56 per cent), NSW (1.22 per cent), South Australia (0.95 per cent), Northern Territory(0.83 per cent) and Tasmania (0.77 per cent).
• Population growth in the ACT is at 3½ year highs. But population growth in Queensland is at 11-year lows with Northern Territory population growth at 7-year lows.

Financial Accounts:

• The net financial wealth of Australian households (assets less liabilities) rose for the third straight quarter, lifting by 2.4 per cent in the March quarter.
• Financial assets of households (such as shares, bank deposits) rose by $50.6 billion or 1.9 per cent in the March quarter to $2,651.3 billion. Of the total, 25.3 per cent was held in cash and deposits, above the long-term average of 22.7 per cent. Financial liabilities of households grew by $24.2 billion or 1.6 per cent to a record $1,545.5billion.
• Overall, net household financial wealth (assets less liabilities) rose by $26.4 billion to $1,105.8 billion at the end of the March quarter. Financial wealth is up 7.0 per cent on a year ago but is still down 8.1 per cent from the record high set in the September quarter 2007.
• Net household wealth per capita rose from $48,025 to $49,045. Per capita wealth is up 9.7 per cent over the past five years and up 40.8 per cent over the past decade.
• The household debt to liquid assets ratio rose by 1.2 percentage points to 161.9 per cent in the March quarter. The ratio shows that households do not have sufficient readily liquefiable assets to cover outstanding debt, highlighting a degree of vulnerability in the current economic environment.
• Foreigners sold $1.9 billion of Australian equities in net terms in the March quarter after buying $28.5 billion of equities in the December quarter. The Aussie dollar remained at historically high levels in the quarter, hitting 29-year highs of  US103.34c on March 31.
• Foreign investors held $585.4 billion of Australian listed shares as at the end of March quarter or 41.3 per cent of the total. While the share was modestly down from the December quarter it wasn’t far short of the 12-year high of 43.3 per cent in March 2009 (when the Aussie was at US68.7 cents).

• Assets held by superannuation funds (pension funds) rose by $20.6 billion (2.9 per cent) in the March quarter to $1,164.5 billion. Super funds held 14.7 per cent of assets in cash and deposits, down slightly from the 14.9 percent held in December and well above the long-term average of 8 per cent.
• Non-equity assets held by Australian companies (non-financial) stood at $682.7 billion at the end of March, a record $129.5 billion higher than loans. Short and long-term loans rose by $6.5 billion (1.2 per cent) to $553.3billion at the end of March. Companies held 30.9 per cent of assets in currency and deposits, just shy of the highest level in 11 years.
• The value of listed equities rose by just $16.9 billion (1.2 per cent) to $1,417.5 billion at the end of March. The value of currency and deposits rose by $45.1 billion (2.8 per cent) to $1654.4 billion.
• As at the March quarter, 19.6 per cent of assets were held in listed equities (19.8 per cent long-term average);20.1 per cent held in bonds (17 per cent average); 22.8 per cent held in cash and deposits (20.5 per cent average). Smaller than normal shares of assets were held by unlisted equities (20.4 per cent, compared with 24.1per cent average) as well as bills of exchange, accounts receivable, derivatives and one-name paper.

What is the importance of the economic data?

• Demographic Statistics are issued by the Bureau of Statistics each quarter. The figures include estimates of births, deaths, in-bound and out-bound migration movements and estimates of population change by State.
• The Australian Bureau of Statistics releases the Financial Accounts publication each quarter. The data covers assets, liabilities and financial flows for the key sectors of the economy. Figures on financial wealth help reveal the true state of household finances.

What are the implications for interest rates and investors?

• The conservatism expressed by consumers and businesses in conducting their financial affairs has further watered down the risk of a near-term rate hike.
• The Federal Government must closely assess the labour needs of Australian businesses. The sharp fall inmigration inflows over the past year has served to weaken the economy and added to the tightening of the jobmarket.
• The under-performance of the Queensland economy and out-performance of the ACT economy have much to do with population flows.
• Foreigners are losing patience with Australia. Australian equities have become more expensive, courtesy of a high dollar, but the risks of investing in Australia continue to rise with mooted carbon and mining profit taxes.