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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• Retail trade rose by a larger-than-expected 0.6 per cent in June after a revised 0.3 per cent fall in May (previously down 0.5%). Annual spending growth rose from 4.9 per cent to 5.5 per cent.
• In the June quarter, inflation-adjusted retail sales fell by 0.2 per cent but grew by 3.1 per cent in the 2013/14 financial year – the best annual growth in six years.
• Strongest growth in the quarter was by “other retailing” including Florists and antique retailers (up 3.2 per cent), followed by “Hardware, building and garden supplies” (up 1.7 per cent), and “Liquor retailing” (1.1 per cent).
• Inflation well contained: The TD Securities-Melbourne Institute monthly inflation gauge rose by 0.2 per cent in July and stood 2.6 per cent higher than a year ago.
• Petrol prices slide: According to the Australian Institute of Petroleum, the national average Australian price of petrol fell by 3.3 cents per litre to 149.3 cents a litre in the week to August 3. The key Singapore gasoline price and national average wholesale (terminal gate) price have fallen to 8-month lows.
• Hiring again: Job advertisements rose by 0.3 per cent in July after rising 4.4 per cent in June.

What does it all mean?

• The latest economic data was certainly more upbeat than what we have seen in the last couple of months – particularly when it comes to retail sales. Retail sales rebounded in June, with job ads lifting, inflation benign and motorists enjoying some of the cheapest fuel prices in months.
• Aussie households have put concerns about the Federal Budget behind them and are getting on with life. In recent weeks consumer sentiment has lifted back to the levels that existed well over three months ago – before Budget concerns started to dampen Aussie spirits. The rebound in confidence is now translating through to a lift in spending. In fact discretionary (non-food) spending lifted by 0.7 per cent – the strongest result in five months.
• Aussie retailers have certainly faced their share of headwinds over the 2013/2014 financial year. However despite warmer winter weather, election uncertainty, and budget shocks, inflation-adjusted retail sales grew by 3.1 per cent in the 2013/14 financial year – the best annual growth in six years.
• Motorists certainly have no reason to complain at present. Not only are pump prices holding at a 16-week low, but the discounting cycle has been more prolonged, with petrol prices still falling 21 days after hitting the high point in the cycle. Such a sustained fall in fuel prices is unprecedented. Usually the discounting cycle lasts around 10-12 days, however this time petrol retailers have been passing on to motorists the savings from the recent slump in global oil prices. The key Singapore gasoline price and national average wholesale (terminal gate) price have fallen to 8-month lows.
• Inflation remains well and truly in check. The Reserve Bank is firmly on the interest rate sidelines and the rhetoric on interest rate stability is likely to stay. However given the ongoing concerns about the Australian dollar, and contractionary fiscal policy, it is very likely that the Reserve Bank strikes a dovish tone in the statement accompanying the anticipated “no change” interest rate decision tomorrow.

What do the figures show?

Retail trade – June month:

• Retail trade rose by 0.6 per cent in June after a revised 0.3 per cent fall in May (previously reported as down 0.5%). Annual spending growth rose from 4.9 per cent to 5.5 per cent.
• Non-food retailing rose by 0.7 per cent in June – the first increase in four months. Non-food retail spending is up 5.4 per cent on a year ago. Sales by chain-store retailers and other large retailers rose by 0.5 per cent in June after a 0.3 per cent fall in May and were up 5.7 per cent over the year.
• Sales rose in six of the eight states and territories, led by Tasmania (up 1.3 per cent), and followed by the Western Australia (up 1.1 per cent), NSW (up 0.9 per cent), Victoria (up 0.6 per cent), South Australia (up 0.5 per cent) and the Northern Territory (up 0.3 per cent). Sales fell 0.5 per cent in the ACT and were flat in Queensland.

Retail trade – June quarter:

• In real (inflation-adjusted) terms, retail trade fell by 0.2 per cent in the June quarter after lifting by 1.2 per cent in the March quarter. In nominal terms, retail trade rose by 0.1 per cent in the quarter.
• Strongest growth in the quarter was by “other retailing” including Florists and antique retailers (up 3.2 per cent), followed by “Hardware, building and garden suppliers” (up 1.7 per cent), and “Liquor retailing” (1.1 per cent).
• The biggest drop in sales in the quarter was recorded by “Newspaper & books” (down 3.8 per cent), followed by“other specialised food retailing” including butchers, fruit, bread and fish shops (down 3.1 per cent), and“Furniture, floor coverings, houseware, and textile retailers” (down 2.2 per cent)
• Retail inflation lifted just 0.2 per cent in the June quarter. Retail prices are up 2.2 per cent over the year. Prices of goods at “Supermarkets & grocery stores” rose 1.0 per cent, with prices at liquor retailers and takeaway food services both up 0.9 per cent. Prices at pharmaceutical, cosmetic and toiletry retailers fell by 1.9 per cent in the June quarter.

Petrol prices

• According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrolfell by 3.3 cents a litre to 149.3 c/l in the week to August 3. The slide in prices reflects an easing towards the trough in the discounting cycle that exists in southern and eastern capital cities. The metropolitan price fell by 4.5 cents to 146.6 c/l, while the regional average price fell by 1.2 cent to 154.6 c/l.
• Average unleaded petrol prices across states and territories over the past week were: Sydney (down by 4.9 cents to 143.9 c/l), Melbourne (down by 5.8 cents to 143.5 c/l), Brisbane (down by 7.9 cents to 145.7 c/l), Adelaide (up by 2.3 cents to 152.9 c/l), Perth (down by 1.7 cents to 150.8 c/l), Darwin (unchanged at 173.0 c/l), Canberra (down 0.8 c/l to 155.8 c/l) and Hobart (down 0.2 c/l to 160.5 c/l).
• Today, the national average wholesale (terminal gate) unleaded petrol price stands at 139.9 c/l, down around 2.8 cents over the week and the lowest level in eight months.
• Last week the key Singapore gasoline price fell by US$3.35 or 2.9 per cent to an 8-month low of US$113.35 a barrel. In Australian dollar terms the Singapore gasoline price fell by $2 a barrel or 1.6 per cent last week to $109.95 a barrel or 76.70 cents a litre – also the lowest levels in 8½-months.
• Figures from MotorMouth show that petrol prices in Sydney, Melbourne, Brisbane, and Adelaide are still trending lower and have been sliding for an extended 21 days. Normally the cycle tends to last around 12-14 days, however the ongoing slide in global oil prices have allowed retailers to pass on further savings to motorists.

Inflation gauge

• The monthly inflation gauge rose by 0.2 per cent in July after a flat result in June. The annual rate of inflation fell from 3.0 per cent to 2.6 per cent.
• The underlying rate (trimmed mean) rose by 0.4 per cent in July. The annual rate fell from 3.0 per cent to 2.6 per cent.
• Excluding volatile items like petrol and fruit & vegetables, the inflation gauge fell by 0.1 per cent in July after a 0.1 rise in June. The annual rate of inflation fell from 2.5 per cent to 1.9 per cent.
• TD Securities noted that “Contributing to the overall change in July were seasonal price rises for gas and other household fuels (+5.0 per cent), property rates and charges (+3.4 per cent) and electricity (+1.7 per cent). These were offset by falls in water and sewerage (-13.0 per cent), clothing and footwear (-4.1 per cent), and alcohol and tobacco (-0.2 per cent). The price fall in “water and sewerage” was due to a rebate of $100 and a fall in water usage charge in Victoria.”

Job Advertisements

• Job advertisements rose by 0.3 per cent in July after a 4.4 per cent rise in June. Newspaper advertisements fell by 2.8 per cent in the month, however internet ads rose by 0.4 per cent. Job ads were up 4.2 per cent on a year ago. In trend terms, ads rose by 0.1 per cent, the ninth straight gain.
• The Bureau of Statistics’ Retail trade publication contains the most current readings on the performance of consumer spending. The ABS surveys 500 ‘larger businesses’ and 2,750 ‘smaller businesses’. Retail trade covers spending at a broad range of retail outlets but excludes both petrol and motor vehicle sales. A weak retail trade result may point to a slowing economy as well weighing on the share prices of listed retail stocks. But retail trade estimates can’t be assessed in isolation – it is important to look at the influences determining future trends in consumer spending, such as income, employment and confidence levels.
• The TD Securities/Melbourne Institute Monthly Inflation Gauge is designed to “provide a timely and accurate monthly measure of inflation in Australia”. The Bureau of Statistics only releases the Consumer Price Index on a quarterly basis.
• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory’s metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.
• The monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.
• The Reserve Bank would be heartened by the recent lift in consumer confidence and resulting rebound in retail activity. Housing activity is no doubt supporting the overall lift in spending and will continue to absorb the weakness in mining investment.
• Overall the economy is on a solid footing and remains fundamentally sound. Given the low interest rate environment, rising share markets and the lift in home prices, the Reserve Bank is likely to be watching for an improvement in labour market conditions. We expect the Reserve to maintain a neutral stance, while keeping a close eye on the transition of growth from mining investment to other parts of the economy. The fiscal drag and uncomfortably high Aussie dollar will keep rates on hold over the next few months.

What is the importance of the economic data?

• The Bureau of Statistics’ Retail trade publication contains the most current readings on the performance of consumer spending. The ABS surveys 500 ‘larger businesses’ and 2,750 ‘smaller businesses’. Retail trade covers spending at a broad range of retail outlets but excludes both petrol and motor vehicle sales. A weak retail trade result may point to a slowing economy as well weighing on the share prices of listed retail stocks. But retail trade estimates can’t be assessed in isolation – it is important to look at the influences determining future trends in consumer spending, such as income, employment and confidence levels.
• The TD Securities/Melbourne Institute Monthly Inflation Gauge is designed to “provide a timely and accurate monthly measure of inflation in Australia”. The Bureau of Statistics only releases the Consumer Price Index on a quarterly basis.
• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory’s metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.
•  The monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.

What are the implications for interest rates and investors?

• The Reserve Bank would be heartened by the recent lift in consumer confidence and resulting rebound in retail activity. Housing activity is no doubt supporting the overall lift in spending and will continue to absorb the weakness in mining investment.
• Overall the economy is on a solid footing and remains fundamentally sound. Given the low interest rate environment, rising share markets and the lift in home prices, the Reserve Bank is likely to be watching for an improvement in labour market conditions. We expect the Reserve to maintain a neutral stance, while keeping a close eye on the transition of growth from mining investment to other parts of the economy. The fiscal drag and uncomfortably high Aussie dollar will keep rates on hold over the next few months.

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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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