Household incomes lift; Chinese tourists in vogue

Tourism data; Household wealth and income distribution

• The latest comprehensive analysis of income and wealth levels provides a different perspective on wealth and home ownership. Inequality across Australian households has increased over the past decade.
• Real (inflation adjusted) weekly gross household income actually lifted in 2013/14 compared with 2011/12. In fact average real gross household income has lifted by 6.3 per cent in the past two years. The proportion of households earning more than $2,000 per week has lifted to 38.3 per cent – a record high.
• Home owners: In 2013/14, 31.4 per cent of households owned their homes outright, up from 30.9 per cent in 2011/12. The proportion of households that owned their homes with a mortgage fell from 36.6 per cent to 35.8 per cent. The proportion of households renting rose from 30.3 per cent to a record high of 31 per cent.
• Tourism flows: Tourist arrivals fell by 0.1 per cent in seasonally adjusted terms in July to 607,000. Arrivals are up 5.9 per cent over the year. Over the year to July, tourist arrivals hit a record high of 7.14 million. Tourist departures rose by 0.7 per cent in July. Departures are up 3.9 per cent on the year.
• Tourists from China and Hong Kong rose to a record 1,152,500 over the past year, up 17 per cent over the year. CommSec estimates that China/Hong Kong will pass New Zealand as Australia’s largest source of tourists in June 2016.

What does it all mean?

• The household income and distribution figures are released only once every two years, however the information garnered can certainly provide policymakers and commentators with a clearer perspective on just how well households are faring. And the latest results certainly don’t disappoint.
•  The new figures show that real (inflation adjusted) weekly gross household income actually lifted in 2013/14 compared with 2011/12. In fact gross income has lifted by 6.3 per cent in the past two years with disposable income up 3.5 per cent. The latest figures go a long way in explaining why consumers have highlighted the improvements in family finances and the incremental lift in spending.
• Interestingly the latest figures also highlight the more pronounced impact that interest rate changes can have on overall activity levels. Go back ten years and the proportion of households that owned their home outright was in line with the share of households paying off a mortgage. However in the latest reading the proportion of households paying off a mortgage is almost 5 percentage points above households that own their home outright. Interestingly the proportion of households that are renting has risen to a record high.
• The number of Aussies going overseas for holidays has lifted in the past two months and is now heading back to the record highs reached in April last year. And while the number of foreigners visiting Australia eased in July it has hit record highs over the full 12 months period to July, with over 7.1 million tourists visiting our shores. No doubt the volatility in the currency will play a significant part when deciding on future holiday destinations.
• Interestingly in just five years, the annual number of Chinese and Hong Kong tourists to Australia has more than doubled. And if the current growth rates keep up, China will still surpass New Zealand as our primary source of tourists in around three years’ time. But the growth rates are even more staggering when Hong Kong is added into the mix. For the first time in Australia’s history, combined tourists from China and Hong Kong are edging towards an annual rate of 1.2 million. Tourist numbers from the region have effectively trebled over the past decade and current growth is near 17 per cent per annum. At the current rate, China and Hong Kong will pass New Zealand as our primary source of tourists in less than a year.
• Looking forward, not only will the fall in the Aussie dollar drive further tourism inflows, but it should provide an additional degree of support to the domestic tourism sector. Over time, the cheaper currency should make it more attractive to travel within Australia rather than overseas – although it will take some time yet to make a significant dent in the tourism deficit.
• The recovery is still in its infancy and the Reserve Bank has some work on its hands to disentangle the various parts of the economy. CommSec expects the Reserve Bank to remain on the interest rate sidelines over the rest of 2015.

What do the figures show?

Overseas arrivals & departures

• Tourist arrivals fell by 0.1 per cent in seasonally adjusted terms in July. Arrivals are up 5.9 per cent over the year. Tourist departures rose by 0.7 per cent in July. Departures are up 3.9 per cent on the year.
• Over the past year a record 942,500 tourists came to Australia from China, up 20.4 per cent over the year. Tourists from China and Hong Kong rose to a record 1,152,500 over the past year, up 17 per cent over the year. Our number one tourist group, New Zealand, totalled 1,279,800 visitors over the past year, but was up just 4.6 per cent.
• Over the past year to July, net permanent and long-term arrivals to Australia totalled 296,750 – just shy of the 4 year lows hit in the year to June (292,330).

Household wealth and income distribution

• After falling since the mid-1990s, the proportion of Aussie households that own their homes without holding a mortgage has increased. In 2013/14, 31.4 per cent of households owned their homes outright, up from 30.9 per cent in 2011/12. The proportion of households that owned their homes with a mortgage fell from 36.6 per cent to 35.8 per cent while the proportion of households renting rose from 30.3 per cent to a record high of 31 per cent.
  What is the importance of the economic data?
• The Australian Bureau of Statistics releases data on overseas arrivals and departures is produced monthly and is an indicator of the health of the tourism sector. The figures are also useful in understanding spending trends and tracking migrant numbers – an indicator with widespread implications for employment, housing and spending.

What are the implications for interest rates and investors?

• In-bound migration is holding just shy of the lowest levels in four years, meaning that there is greater scope for unemployment to fall in the short-term before businesses have to start looking abroad for suitable staff.
• The income distribution and wealth figures provide an interesting perspective on the health of Australian households. The low interest rate environment certainly has allowed more households to take on debt. Encouragingly the lift in gross household incomes should support activity levels going forward.
• No doubt the larger proportion of households with a mortgage highlights the increase in interest rate sensitivity and as such the Reserve Bank would need to be more cautious when lifting rates.
• CommSec expects no change to interest rate settings in coming months.