What does it all mean?

• The latest data on household wealth certainly provides Aussie households with a bit of cheer and could not come at a better time, especially given the underlying level of conservatism. The global financial crisis caused the biggest ever drop in wealth for Australian households, however wealth levels have continued to repair over past couple of years and are now back at record highs.
• The sustained improvement in wealth levels and low interest rate environment has resulted in household tentatively starting to spend. Just over 22 per cent of total household assets are being held in cash and deposits – well above the decade average of 20.4 per cent, but have eased over the past few quarters. 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 may prompt consumers to invest in other asset classes and spend a little bit more freely.
• It’s not only household wealth levels that have improved but also company balance sheets are certainly looking healthier. Corporate Australia held a record $403.5 billion in cash and deposits as at the end of March and the proportion of total financial assets, companies held in cash is just shy of the highest levels in 22-years.
• The strength in share markets has certainly been the key driver of the turnaround in wealth and more importantly the pickup wealth is expected to continue. CommSec expects an ongoing improvement in wealth over coming quarters. While the rate cuts will support corporate Australia, the key hurdle is the Federal election. Once the election is out of the way it is likely Aussie business will feel more confident to ramp up investment plans.
• Australian superannuation funds are holding almost double 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 the equity investments have been less than the cash inflows record by fund managers. The risk for fund managers is being caught with too much money on the sidelines while equity markets track higher. As term deposit rates fall and the global economy strengths pension funds will need to allocate a larger proportion of inflows to growth assets.
• Over the past few years foreign investors have become more prominent investors in our companies. At the end of the March quarter, foreigners owned almost 45 per cent of Australian listed companies, holding just shy of the 20 year highs reached in the June quarter 2012. Not only do foreign investors hold almost half of our listed shares, they also hold over two-thirds of Australian government bonds. The recent volatility in the Australian dollar and the perception of a weaker currency over the coming year is likely result in a modest fall in foreign investment over coming quarters.

What do the figures show?

Financial Accounts:

• Households held a record $767 billion in cash and deposits at the end of March. Cash and deposit holdings represented 22 per cent of assets, above the decade average of 20 per cent.
• Australian non-financial private companies held $403.5 billion in cash and deposits at the end of March. Cash and deposits were 44.6 per cent of financial assets, just shy of the 22-year high of 45.6 per cent recorded in the December quarter 2011 but still well above the long-term average of 38.4 per cent.
• Pension fund (superannuation fund) assets rose by $70.5 billion to $1474.2 billion in the March quarter. Cash and deposits stood at a record 14.5 per cent of financial assets, well above the long-term average of 8.8 per cent.
• The net financial wealth of Australian households (assets less liabilities) rose by $88 billion or 5.2 per cent to $1,768.2 billion – a record high.
• Net financial wealth per capita rose from $73,352 to $75,955 in the March quarter. Per capita wealth is up 22.1 per cent over the past year and up 14.6 per cent over the past three years. Over the past decade per capita wealth is up 103.7 per cent.
• Foreign investors held $628 billion of Australian listed shares as at the end of the March quarter or 44.6 per cent of the total, easing further from the 20 year high of 46.8 per cent reached in the June quarter 2012. Foreign investors held 70.1 per cent of Australian government bonds in the March quarter, easing further from the record 78.9 per cent in the March quarter 2012.

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US Monetary Policy; Population; Employment by industry

• ¾ US Monetary Policy: Federal Reserve chairman Ben Bernanke has signalled a new phase for the US economy. But bond buying (printing cash) won’t end any time soon.
• ¾ Population: Australia’s population grew by 1.75 per cent over the year to December – the fastest rate in three years.
• ¾ Industry employment: Employment rose by just 400 people in the three months to May after gaining 104,900 in the previous three months – the biggest quarterly gain in five years. Strongest sector in the May quarter was Retail trade (up 34,200) while Wholesale trade jobs fell by 32,000.
• ¾ Chinese economy: The ‘flash’ Purchasing Managers index in china for June was at a 9-month low of 48.3, down from 49.2 in May.

What do the figures show?

US Monetary Policy

• The Federal Reserve will continue to purchase debt at the rate of $85 billion a month and leave the official interest rate between zero and 0.25 per cent. But while the Fed chief Ben Bernanke hinted at an end to bond buying, he noted: “If you draw the conclusion that I’ve just said that our purchases will end in the middle of next year, you’ve drawn the wrong conclusion, because our purchases are tied to what happens in the economy.”

Demographic Statistics

Employment to May 2013

• Australia’s population grew by 1.75 per cent over the year to December – the fastest rate in three years. Australia’s population stood at 22,906,352 people at the end of December, but six months later the figure is most likely around 23.1 million.
• A record 305,400 babies were born over 2012, up 2.2 per cent over the year but deaths barely moved over the year to 147,000. Overseas migration totalled 235,900 in the 2012 calendar year, the biggest annual total in three years, but below the record high of 315,700 in the year to December 2008.
• Across the states and territories, fastest annual population growth occurred in Western Australia (3.47 per cent – fastest on record), followed by ACT (2.30 per cent), Queensland (2.05 per cent), Northern Territory (1.79 per cent), Victoria (1.78 per cent), NSW (1.25 per cent), South Australia (0.95 per cent) and Tasmania (0.08 per cent).

Employment by Industry

• Employment rose in 9 of the 19 industry sectors in the three months to May. Employment fell most in Wholesale Trade (down 32,000) after rising by 39,300 in the previous quarter. Next biggest fall was by Construction (down 20,300) followed by Transport, Postal and Warehousing (down 19,800). Biggest gain in
  

  Record Population WA May 2013

  jobs occurred in Retail Trade (up 34,200) followed by Public Administration and Safety (up 14,000) and Arts and Recreation Services (up 13,700).

• Healthcare remains the biggest employer with 1.40 million employees (12.1 per cent of the total) followed by Retail Trade (10.8 per cent) and Construction (8.6 per cent).

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 (ABS) provides detailed labour market figures
  

  Revised population data May 2013

  one week after releasing ‘top level’ statistics of employment & unemployment levels across states and territories. The detailed data is useful in identifying broader underlying trends and instructive about the health of the economy.

What does it all mean?

• Financial markets have over-reacted to the latest Fed decision. Rather than celebrating the fact that the US economy is starting to stand on its own two feet, investors are fretting about the end to cheap cash. The Dow Jones fell 206 points and the Aussie slumped against a stronger greenback to US93 cents.
• This is very much a knee-jerk reaction. The good news outweighs the bad.
  

  Baby boom May 2013

  And all the US economic problems haven’t been solved overnight. We are still tipping the Aussie dollar at US95c at end year and All Ordinaries at 5,200 points.

• Investors are also over-reacting to the Chinese PMI. The so-called ‘flash’ manufacturing gauge doesn’t line up well to the ‘official’ gauge of manufacturing activity. But if the Chinese economy requires stimulus, authorities are well placed to provide it with inflation controlled.
• Provided state and local governments respond to solid population growth then it represents good momentum for economies. That is happening. Businesses are in business because they want to grow and solid population growth assists in that growth.
• The job market is effectively flat-lining until the election is out of the way. The lift in retail jobs is clearly a big surprise.

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What does it all mean?

• Aussie consumers and businesses are spending a little bit more freely. According to the latest Commonwealth Bank Business Sales Indicator (BSI), economy-wide spending grew by 1 per cent in trend terms in May, after a 1.2 per cent lift in April and a 1.1 per cent gain in March.
• Retailers have reason to be more confident, and despite the recent fall in the Aussie dollar it is still a case of keeping prices lower to attract customers and prevent them flocking to overseas web sites.
• The Reserve Bank is unlikely to shift its rhetoric in the near future. The economy is improving of a low base, however the recovery is still fragile. An ongoing improvement in confidence is necessary to support activity levels, and the perception of lower interest rates will certainly support sentiment.

What do the figures show?

• The recovery in economy-wide spending is consolidating. According to the latest Commonwealth Bank Business Economy-wide spending is now recording firm growth, in marked contrast to the weakness exhibited from May to September last year. According to the latest Commonwealth Bank Business Sales Indicator (BSI), economy-wide spending grew by 1.0 per cent in trend terms in May, the ninth constructive monthly increase in spending. Over that past three months sales have lifted on average by 1.1 per cent a month – the strongest growth in six years.
• The seasonally-adjusted measure of sales leapt by 5.2 per cent in May – the strongest increase in five years. The BSI had previously eased by 0.1 per cent in April after lifting by 1.3 per cent in March. Annual growth in spending now stands at 10.3 per cent in seasonally adjusted terms, up from 5.9 per cent in April.
• The Commonwealth BSI is obtained by tracking the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities. And in line with the practice of the Bureau of Statistics with its retail trade data, seasonally adjusted and trend estimates of the BSI are obtained by applying statistical software. The seasonally adjusted and trend BSI results are derived from the same SEASABS statistical software. This allows analysis of the broader underlying trends that may be hidden in the raw data.
• Across sectors, seven of the industry sectors fell in trend terms in May but declines were fairly modest. Amongst the weakest sectors in May were Mail Orders & Telephone Order Providers (down 1.6 per cent) with Automobiles & Vehicles, Business Services and Hotels & Motels all losing 0.6-0.7 per cent.
• In contrast the large Retail Stores sector (31.5 per cent of the BSI) rose by 2.3 per cent in May with both Utilities and Wholesale Distributors & Manufactures up 1.4 per cent.
• In annual terms in May, the BSI was up 7.4 per cent on a year ago – the best growth since December 2007. Six of the 20 industry sectors contracted in May, up from five sectors in April and four sectors in March. Spending in Business Services fell for the third straight month, down 6.2 per cent and the biggest fall in around 5½ years. And sales at Mail Orders & Telephone Order Providers fell at a 28.1 per cent annual pace in May after rising at an annual rate of around 20 per cent between March-June 2012.
• Strongest growth was recorded by the large Retail Stores sector, up 12.9 per cent on a year ago, while the Wholesale Distributors & Manufactures sector was up 11.0 per cent, followed by Utilities, up 9.2 per cent, Government services, up 8.6 per cent.
• None of the states and territories recorded weaker sales in trend terms in May. Sales rose most in NSW (up 1.9 per cent), followed by the ACT (up 1.5 per cent), South Australia (up 1.0 per cent), Queensland (up 0.6 per cent), Western Australia (up 0.3 per cent), Northern Territory and Victoria (up 0.2 per cent) and Tasmania (flat).
• The trend BSI has now risen for two years in the Northern Territory, for 23 straight months in both Queensland and South Australia, for 20 straight months in ACT and for 14 straight months in Tasmania.
• In annual terms, no state or territory had sales below a year ago. Strongest growth was posted in ACT (up 13.3 per cent), followed by South Australia (up 12.2 per cent), NSW (up 8.8 per cent), and Queensland (up 7.5 per cent).

What are the implications for interest rates and investors?

• Consumer spending is expanding at a reasonably constant rate across the country. Overall the economy remains patchy at present and policymakers will want more consistent readings on the economy before deciding on any shifts in monetary policy. CommSec expects the next rate cut to take place in August.

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This move allows CommSec Adviser Services to bring together and enhance the unique strengths of the two existing brands. 

Stephen Karpin, Executive General Manager Equities and Margin Lending said, “We are excited by this change as it will enable us to further integrate our products and better support our clients.  Whilst we already have great functionality available, this next step in our evolution will allow us to continue to enhance our service offering.  It’s our intention that CommSec Adviser Services will be the market leading provider of investment services to Australian financial intermediaries.” 

CommSec Adviser Services marks a consolidation of products and services that will benefit advisers by providing them with a single point of contact for service and support.  The change also allows us, for the first time, to combine information and logins for our trading, margin lending, cash, debt optimisation, portfolio administration and investment advice products into one site, making it easier for advisers to find what they’re looking for faster. 

Mr Karpin continued, “By speaking to our customers about the potential change, we discovered there was a significant appetite for an alignment of Core Equity Services and Colonial Geared Investments under the one brand, with some customers reporting that it would drive them to do more business with us.” 

Mr Karpin added, “CommSec Adviser Services reflects the combination of leading technology and innovation that comes from our CommSec DNA, alongside the added features we provide for advisers – features such as our Adviser Service Team whose extensive experience working with advisers means they can provide more relevant assistance. It allows us to offer strength, security and a reputation for reliability that we know our advisers and their clients are looking for.”

CommSec Adviser Services will remain completely independent of the CommSec service for direct investors to ensure that relationships between advisers and their clients are preserved.

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