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.

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Household wealth

• 

  Australians getting richer: ABS

  The Bureau of Statistics has released the report “Household Wealth and Wealth Distribution 2011/12”.

• Average wealth. Wealth (assets less liabilities) of the ‘average’ Australian household stood at just over $728,000 in 2011/12. While down around $30,000 on two years earlier, wealth is likely to have rebounded to record highs over the past year in response to rising share prices and home prices.
• Family home dominates. The value of the family home accounts for around 40 per cent of net worth or wealth with superannuation the next largest assets followed by investment homes.
• More millionaires. Just over 20 per cent of all families can be regarded as ‘millionaire’ families. After accounting for inflation, less than 15 per cent of families were ‘millionaire’ families eight years ago.

What does it all mean?

• Most people like to think they are doing it tough. In large part that is because the list of so-called ‘essentials’ is bigger nowadays and in large part includes more ‘discretionary’ items than in the past. But the latest data shows that more families can be regarded as relatively well off. In 2011/12, the proportion of families with net wealth – that is assets exceeding liabilities – of more than $1 million was over 20 per cent. That’s one in five families and the data does take into account inflation over time.
• While net wealth fell over the two years to June 2012 by almost $31,000 or 4 per cent, over the past year home prices lifted by around 4 per cent with total returns on shares up by over 20 per cent. So it more than likely that wealth is back at record highs, shrugging off the Global Financial Crisis and subsequent European Debt Crisis.
• Consumers have been cautious to spend over the past year, but, underpinned by generational low interest rates, it is clear that spending is set to rebound after the election.
• Australians are getting richer. After adjusting for inflation over time, the proportion of people with wealth between zero and $50,000 fell from 14.6 per cent to 12.7 per cent over the eight years to 2011/12 while families with more than $1 million rose from 14.6 per cent to 20.7 per cent.
• Mean (average) net worth (assets less liabilities) stood at $728,139 in 2011/12, down $30,891 or 4.1 per cent over the two years from 2008/09.
• Average household assets stood at $858,200 in 2011/12 with the family home accounting for $369,900 (43 per cent) of the total. The next highest asset was superannuation at $132,300 followed by investment property at $129,100 and home contents (TVs, fridges etc) at $62,600.
• Average household debt in 2011/12 was $130,100 and dominated by outstanding loans (principal) on the family home at $74,700 and other property debt at $42,100.
• Wealth in the bottom 20 per cent of families averaged $31,200 in 2011/12 while wealth in the top 20 per cent averaged $2.2 million.
• In 2011/12, average (mean) wealth was highest in the ACT at $929,800 followed by Western Australia at $768,400, NSW at $756,000, Victoria at $746,400, Northern Territory at $722,000, South Australia at $666,400; Queensland at $663,600 and Tasmania at $601,000.
• In Canberra, wealth was highest at $929,784 in 2011/12, but next highest is Melbourne at $813,417, followed by Sydney, Darwin, Perth, Brisbane, Adelaide and Hobart.
• The state with the highest proportion of households owning their homes outright was Tasmania (35.3 per cent) from South Australia at 33.9 per cent. The lowest proportion of owner occupiers is in the Northern Territory at 16.5 per cent.
• When official interest rates are cut, the state/territory receiving the biggest boost is the ACT (40.4 per cent of households have a mortgage) followed by Western Australia (40 per cent) and South Australia (38.4 per cent).
  • Consumers may not be actively spending at present but that doesn’t mean they are unable to spend. Household wealth is either at or near record highs and with home prices rising, wealth levels will follow suit.
  • There is a raft of data classified by region, income and wealth ranges together with varying household characteristics, giving investors a better understanding about how Aussie families are positioned. The data is useful in understanding ‘“hot button” issues influencing consumer spending.
  • There are key differences in wealth and housing tenure between capital cities and regional areas in states and territories, especially in Victoria
  • While there is plenty of attention paid to household debt, household assets continues to grow at a faster rate, lifting wealth levels to record highs.

What do the figures show?

• Mean (average) net worth (assets less liabilities) stood at $728,139 in 2011/12, down $30,891 or 4.1 per cent over the two years from 2008/09.
• Average household assets stood at $858,200 in 2011/12 with the family home accounting for $369,900 (43 per cent) of the total. The next highest asset was superannuation at $132,300 followed by investment property at $129,100 and home contents (TVs, fridges etc) at $62,600.
• Average household debt in 2011/12 was $130,100 and dominated by outstanding loans (principal) on the family home at $74,700 and other property debt at $42,100.
• Wealth in the bottom 20 per cent of families averaged $31,200 in 2011/12 while wealth in the top 20 per cent averaged $2.2 million.
• In 2011/12, average (mean) wealth was highest in the ACT at $929,800 followed by Western Australia at $768,400, NSW at $756,000, Victoria at $746,400, Northern Territory at $722,000, South Australia at $666,400; Queensland at $663,600 and Tasmania at $601,000.
• In Canberra, wealth was highest at $929,784 in 2011/12, but next highest is Melbourne at $813,417, followed by Sydney, Darwin, Perth, Brisbane, Adelaide and Hobart.
• The state with the highest proportion of households owning their homes outright was Tasmania (35.3 per cent) from South Australia at 33.9 per cent. The lowest proportion of owner occupiers is in the Northern Territory at 16.5 per cent.
• When official interest rates are cut, the state/territory receiving the biggest boost is the ACT (40.4 per cent of households have a mortgage) followed by Western Australia (40 per cent) and South Australia (38.4 per cent).

What are the implications for investors?

• Consumers may not be actively spending at present but that doesn’t mean they are unable to spend. Household wealth is either at or near record highs and with home prices rising, wealth levels will follow suit.
• There is a raft of data classified by region, income and wealth ranges together with varying household characteristics, giving investors a better understanding about how Aussie families are positioned. The data is useful in understanding ‘“hot button” issues influencing consumer spending.
• There are key differences in wealth and housing tenure between capital cities and regional areas in states and territories, especially in Victoria
• While there is plenty of attention paid to household debt, household assets continues to grow at a faster rate, lifting wealth levels to record highs.

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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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• The financial wealth of Australians rose in the December quarter – largely due to 4.5 per cent rise in equity markets. Net financial assets of households rose by 3.4 per cent after rising by 8.1 per cent in the
  September quarter.
• Per capita financial wealth rose by almost $1,400 to $46,330 in the last quarter – marking the highest reading in almost three years. Financial wealth is down 12.7 per cent below the record set in late 2007 Australian companies are maintaining very liquid balance sheets. Corporate Australia held a record $277.6 billion in cash and deposits as at December. As a proportion of total financial assets, companies held 30.5 per cent of financial assets in cash – the highest in 11 years.
• Assets held by superannuation funds (pension funds) rose by $40 billion (3.7 per cent) in the December quarter to $1120.9 billion. Super funds held 15.1 per cent of assets in cash and deposits, similar to 15.2 per cent held in September and well above the long-term average of 8 per cent.
• Foreigners purchased $20.3 billion of Australian equities in the December quarter – the highest result in 15 months – since September 2009. In the December quarter the Aussie dollar hit highs of US101.5 cents in early November, before easing over the following month, thus providing a buying opportunity for foreign investors.

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 current 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 2010 and are now holding at the best levels in almost three years.
• Despite the sustained improvement in wealth levels household continue to save. With almost 25 per cent of total assets being held in cash and deposits – well above the long-term average of 22.7 per cent. The current level of consumer conservatism is unlikely to turnaround anytime soon, however the improvement in household balance sheets certainly bodes well for future spending.

• It’s not only household wealth levels that have improved but also company balance sheets are certainly looking much healthier. Corporate Australia held a record $277.6 billion in cash and deposits as at December and the proportion of total financial assets, companies held in cash is now at the highest level in 11 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 a sustained recovery in wealth over coming quarters. The rebuilding in the second half of the year will help to support activity and spending levels, while at the same time corporate Australia is likely 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. No doubt as the global economy strengths and the recovery look more concrete pension funds will feel more comfortable with allocating a larger proportion of inflows to growth assets.
• Foreign investors have become more prominent investors in our companies. At the end of the December quarter, foreigners owned almost 42 per cent of Australian listed companies, holding just shy of the 12 year highs reached in the March quarter 2009. And in the December quarter alone, foreigners made over $32 billion in net purchases of Australian equities. The movements in the Australian dollar is an important factor in driving foreign investment and if the Aussie dollar does start to ease over rest of the year – as our currency strategists expect – further inflows of funds are likely to take place. Added to which equity markets are likely to get a boost from M&A activity largely driven by cashed up companies and foreign investors.

What do the figures show?

• The net financial wealth of Australian households (assets less liabilities) rose sharply by 3.4 per cent in the December quarter after rising by 8.1 per cent in the September quarter.
• Financial assets of households (such as shares, bank deposits) rose by $58.8 billion or 2.4 per cent in the December quarter to $2,557 billion. Of the total, 24.9 per cent was held in cash and deposits, above the long-term average of 22.7 per cent. Financial liabilities of households grew by $24.3 billion or 1.6 per cent to a record $1,515 billion.
• Overall, net household financial wealth (assets less liabilities) rose by $34.5 billion to $1041.6 billion at the end of December quarter. Financial wealth is up 4.0 per cent on a year ago but is still down 12.7 per cent from the record high set in the September quarter 2007.
• Net household wealth per capita rose from $44,936 to $46,330. Per capita wealth is up only 7.0 per cent over the past five years and up 32.2 per cent over the past decade.
• The household debt to liquid assets ratio fell by 0.4 percentage points to 160.1 per cent in the December 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 purchased $20.3 billion of Australian equities in the December quarter – the highest result in 15 months – since September 2009. In the December quarter the Aussie dollar hit highs of US101.5 cents in early November, before easing over the following month, thus providing a buying opportunity for foreign investors.
• Foreign investors held $586.2 billion of Australian listed shares as at the end of December, up $31.9 billion (5.8 per cent) over the quarter. Foreigners held 41.9 per cent of Australian shares, unchanged over the quarter and not 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 $40 billion (3.7 per cent) in the December quarter to $1120.9 billion. Super funds held 15.1 per cent of assets in cash and deposits, similar to 15.2 per cent held in September and well above the long-term average of 8 per cent.
• Non-equity assets held by Australian companies (non-financial) stood at $652.6 billion at the end of December, a record $100 billion higher than loans. The $552.2 billion held in loans was the lowest in 3-1/2 years. Companies held 30.5 per cent of assets in currency and deposits – the highest share in 11 years.
• The value of listed equities rose by $94.5 billion (5.9 per cent) to $1400.6 billion as at the end of December. The value of currency and deposits rose by $35 billion (2 per cent) to $1599.5 billion
• As at the December quarter, 19.7 per cent of assets were held in listed equities (19.8 per cent long-term average); 20.2 per cent held in bonds (17 per cent average); 22.5 per cent held in cash and deposits (20.5 per cent average). Smaller than normal shares of assets were held by unlisted equities (20.3 per cent, compared with 24.1 per cent average) as well as bills of exchange, accounts receivable, derivatives and one-name paper.

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.

What are the implications for interest rates and investors?

• The financial accounts data is essentially backward looking and the Reserve Bank would be well aware that the improvement in wealth over the December quarter would be more muted over the March quarter. Importantly the modest weakness in activity levels, conservative attitudes of consumers and the natural disasters are likely to keep the Reserve Bank on the interest rate sidelines in the near term.
• The Reserve Bank has continuously highlighted the strength of corporate and household balance sheets and the latest result will give the Reserve Bank further confidence that the longer term fundamentals for the economy look sound.
• Super funds and households are still holding much higher than normal levels in cash. CommSec expects that money to be put to work in equities, leading to further gains in share markets in coming quarters. CommSec expects the ASX200 to reach 5200 by December 2011.

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