Record Wealth! RBA open to “macroprudential” tools

From

Financial Accounts; Population; Job Vacancies; Final Budget Outcome

  • Household wealth stood at a record $7,780.6 billion at the end of June, up $97.4 billion or 1.3 per cent over the quarter. In per capita terms, wealth rose to a record $330,841 in the June quarter, up $2,860 over the quarter
  • Population: Australia’s population grew by 111,500 people over the March quarter to 23,452,700. Annual population growth eased from 1.72 per cent to 1.69 per cent. Population growth is above decade averages in just NSW (32 per cent above decade averages) and Victoria (14 per cent above decade averages).
  • Baby boom: In the year to March, 306,500 babies were born, just shy of the record 312,200 babies born in the year to September 2013. A total of 231,500 people migrated to Australia over year to March, well off the low of 172,100 in the year to December 2010.
  • Job vacancies: Job vacancies fell by 0.7 per cent in the three months to August – the first fall in three quarters. Job Vacancies are up 4.1 per cent on a year ago.
  • The final Federal Budget deficit for 2013/14 was $48.5 billion. The result was inflated by the contribution to bolster the Reserve Bank’s balance sheet.
  • The Reserve Bank Governor was a panel discussant at the Melbourne Economic Forum. The Governor once again reiterated the concerns about the lift in house prices and “unbalanced” investor demand. The Governor was sceptical about using macroprudential tools “as a panacea” but is open to using them to ensure sustainable housing and  lending practices.

What does it all mean?

  • The old adage is that it is time in the market, not market timing. And that adage certainly applies to the wealth of Australians.Not only has household wealth levels lifted to fresh record highs but generational-low interest rates are also reducing borrowing costs across an array of sectors. The global financial crisis caused the biggest ever drop in wealth for Australian households, however wealth levels have been repaired over the past couple of years and have hit new highs. In short, we aren’t as badly off as it may seem. Average financial wealth per person stands at just over $330,841.
  • Australia’s financial wealth lifted by over $97 billion in the June quarter. Interestingly the improvement in wealth levels and low interest rate environment over the past year has supported a lift in consumer activity. Interestingly almost 22 per cent of total household assets are being held in cash and deposits – well above the decade average of 20 per cent.
  • As the Reserve Bank has highlighted on many an occasion, the improvement in household balance sheets certainly bodes well for future spending. And given that a low interest rate environment is likely to be part of the economic landscape over the coming year, it is likely to see households continue to invest in other asset classes and spend a little bit more freely.
  • The strength in share markets has certainly been the key driver of the turnaround in wealth and more importantly the pickup in wealth is expected to continue. CommSec expects an ongoing improvement in wealth over coming quarters. The cheap cost of debt will support Corporate Australia and over the coming year CommSec expects Aussie businesses (outside of mining) to feel more confident to ramp up investment plans.
  • Australian superannuation funds are holding well over 1½-times the ‘normal’ proportion of money in defensive assets like cash and bank deposits. That is not to say that super funds have not been investing in equity markets, rather that equity investments have been less than the cash inflows recorded by fund managers. The risk for fund managers is being caught with too much money on the sidelines while equity markets track higher. With term deposit rates offering lower returns than growth assets, it is likely pension funds will allocate a larger proportion of inflows to listed property funds and equity markets
  • The latest population figures are encouraging. Population growth is healthy and in a broader sense rising, underpinned by migration. And if more people are coming to Australia that means greater demand for houses, cars and retail items. Clearly faster population growth is good news for builders and retailers.
  • Some people aren’t convinced that faster population growth is a good thing. It is all about striking the right balance. If we need more workers and we can’t get them locally, it makes sense that we bring them in from abroad. It is vital that supply and demand for workers is brought into balance.
  • The lift in migration is also positive from a longer-run point of view in that it flattens out the ageing profile. We will need more in the way of younger people over time to support the growing ranks of pensioners.
  • There are further signs that unemployment is close to peaking. Job vacancies have effectively gone sideways over the past three months after having recorded a healthy lift in the prior six months. And coupled with previous data showing the ongoing lift in in newspaper advertisements and internet listings, and growth in full time jobs, it is pretty clear that the labour market is in better shape. A lift in new jobs and improvement in job security will underpin consumer spending, home purchases and building.

What do the figures show?

Financial Accounts:

  • Total household wealth (net worth) stood at a record $7,780.6 billion at the end of June, up $97.4 billion or 1.3 per cent over the quarter. In per capita terms, wealth rose to a record $330,841 in the June quarter, up $2,860 over the quarter.
  • In real terms, the value of land and dwellings rose by $48.2 billion in the June quarter while financial assets fell by $45 billion. Net saving plus real wealth rose by $37.6 billion in the quarter.
  • Households held a record $850.5 billion in cash and deposits at the end of June. Cash and deposit holdings represented 21.9 per cent of financial assets, above the decade average of 20 per cent.
  • Pension fund (superannuation fund) assets rose by $14.8 billion to $1,641.2 billion in the June quarter. Cash and deposits stood at 15.8 per cent of financial assets, still well above the long-term average of 9.3 per cent.
  • Foreign holdings of Australian shares rose by $1.8 billion in the June quarter to a record $715.9 billion. Foreigners held 45.9 per cent of Australian listed shares at the end of June, down from 46.2 per cent in the March quarter although above the long-term average of 42.5 per cent.
  • Listed shares accounted for 16.3 per cent of assets in the June quarter, down from 16.4 per cent in the March quarter and below the long-term average of 17.9 per cent.
  • Australian non-financial private companies held $402.4 billion in cash and deposits at the end of June. Cash and deposits were 43.4 per cent of all financial assets in the quarter, up from 42.7 per cent of financial assets in the March quarter but below the 22-year high of 45.7 per cent recorded in the December quarter 2011. The long-term average is 38.9 per cent.

Population Statistics:

  • Australia’s population expanded by 388,400 people over the year to March 2012 to 23,452,700 people. Overall, Australia’s population growth rate eased from 1.72 per cent to 1.69 per cent. Australia’s population grew by 111,500 people over the March quarter. Population growth hit a 5-year low of 1.39 per cent in the year to March 2011 and has modestly improved over subsequent quarters.
  • A total of 231,500 people migrated to Australia over year to March, well off the low of a gain of 172,100 in the year to December 2010. The record high was 315,700 in-bound migrants over the year to December 2008.
  • There were 306,500 babies born in the past year, just shy of the record 312,200 births in the year to September 2013. And deaths (149,500) held just shy of the record highs reached in September quarter 2012.
  • Over the past year population growth was the strongest in Western Australia (2.53 per cent) followed by Victoria (1.90 per cent), Queensland (1.64 per cent), NSW (1.55 per cent), the ACT (1.44 per cent), Northern Territory (1.42 per cent), South Australia (0.93 per cent), and Tasmania (0.31 per cent).
  • Population growth is above decade averages in just NSW (32 per cent above decade averages) and Victoria (14 per cent above decade averages). Population growth has lifted for 12 straight quarters in NSW, and 7 straight quarters in Tasmania. Queensland and Victoria. Population growth is at decade lows in Tasmania.

Job vacancies:

  • Job vacancies fell by 0.7 per cent in the three months to August after rising by 2.4 per cent in previous three months.
  • Over the past year job vacancies fell by 5,700 or 4.1 per cent. Over the past three month vacancies rose the most in retail trade (up 4,800) and Administrative and support services (up 2,600). Vacancies fell most in construction and Healthcare & social assistance (both down 1,100), and Public Administration and Safety (down 1,100).

What is the importance of the economic data?

  • 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.
  • 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 (ABS) and Federal Treasury release the Modellers’ Database each quarter. The ABS notes: “the Modellers’ Database consists of over 500 quarterly times series constructed from the NIF and TRYM econometric models. They are useful to economists, econometricians, financial analysts and students.
  • The Australian Bureau of Statistics releases Job Vacancies data each quarter. The data is useful in gauging the strength of the job market.

What are the implications for interest rates and investors?

  • Foreign investors are actively interested in the direction of our economy, outlook for our companies and in the movements of the Aussie dollar. Foreign investors can exert significant power over our financial markets.
  • Household and company balance sheets remain strong, and it is likely that more money will be put to work in the low interest rate environment over the coming year.
  • The lift in population growth is good news for a raft of Australian companies. Governments must ensure that our infrastructure expands in line with our population.
  • The Reserve Bank is focused on ensuring that property price growth is more sedate and sustainable over the medium term and as such has opened the door to the use of marcoprudential tools to ease some of the heat from the housing market. Expect more detailed discussion in coming months by regulators.

You must be logged in to post or view comments.