Financial Accounts; Detailed labour market data

Record wealth: Total household wealth (net worth) stood at a record $7,318.6 billion at the end of September, up $225.3 billion over the quarter – the biggest quarterly rise in almost four years. In per capita terms, wealth rose to a record $315,117 in the September quarter, up $8,458 over the quarter.

Households held a record $808 billion in cash and deposits at the end of September. Cash and deposit holdings represented 22.1 per cent of financial assets, above the decade average of 20 per cent. Pension funds held 14.8 per cent of assets in cash and deposits, above the long-term average of 8.8 per cent.

Industry employment: Employment rose by 18,400 over the three months to November – the biggest quarterly increase in year. The largest job gains was in Retail trade (up 40,700 – biggest quarterly gain in 16 years), followed by Health Care and Social Assistance (up 32,600) and Agriculture, Forestry and Fishing (up 26,700).

What does it all mean?

• Aussies have never had it so good – at least that’s what the data shows. The latest data on financial wealth certainly provides Aussie households with an additional level of Christmas cheer and could not come at a better time for the retail sector – given the festive season and Christmas/Boxing day sales. The global financial crisis caused the biggest ever drop in wealth for Australian households, however wealth levels have been repaired over past couple of years and are now back at record highs.
• Australia’s financial wealth lifted by $225 billion in the September quarter, marking the biggest quarterly rise in over four years. Interestingly despite the improvement in wealth levels and low interest rate environment Aussie consumers remain rather cautious on spending. Just over 22 per cent of total household assets are being held in cash and deposits – well above the decade average of 20 per cent. 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 financial wealth levels that have improved but also company balance sheets are certainly looking healthier. Corporate Australia held $404.2 billion in cash and deposits as at the end of September. Cash and deposits accounted for 43.2 per cent of all financial assets in the quarter, well above the loner-term average of 39 per cent.
• 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. While the low interest rate environment will support corporate Australia, however as the Reserve Bank Governor highlighted in his testimony to parliament, the key hurdle is confidence. It will take some time for Aussie businesses to 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 recorded 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 strengthens 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 September quarter, foreigners owned 44 per cent of Australian listed companies, easing further from the 20 year highs reached in the June quarter 2012.
• Last week we learned that employment lifted in November. And today we learn where the jobs took place – or more precisely, how many jobs were gained in the past quarter.
• The good news is that over 18,000 jobs were created in the three months to November, reversing the prior six months of losses. And more importantly the beleaguered retail sector was back on a hiring spree. In fact almost 41,000 jobs were created in the November quarter – marking the biggest lift in 16 years. The lift in wealth levels, has supported consumer confidence and households may have just started spending a little bit more freely.
• It is still too early to be suggesting there is a significant improvement in hiring, particularly given that 11 out of the 19 sectors recorded job losses – highlighting the underlying malaise in the labour market. The business sector has been in a holding pattern over the past year (largely due to the drawn out election campaign) and it is likely to take a good 4-6 months for an improvement in economic activity to translate through to a lift in hiring activity.

What do the figures show?
Financial Accounts:

• Total household wealth (net worth) stood at a record $7,318.6 billion at the end of September, up $225.3 billion over the quarter – the biggest quarterly rise in almost four years. In per capita terms, wealth rose to a record $315,117 in the September quarter, up $8,458 over the quarter.
• In real terms, the value of land and dwellings rose by $55.1 billion in the September quarter while financial assets rose by $70.7 billion. Overall, real net wealth rose by $141.5 billion in the quarter. And net saving plus real wealth rose by $176.8 billion in the quarter, the biggest gain since December quarter 2009.
• Households held a record $808 billion in cash and deposits at the end of September. Cash and deposit holdings represented 22.1 per cent of financial assets, above the decade average of 20 per cent.
• Pension fund (superannuation fund) assets rose by $81.2 billion to $1592.9 billion in the September quarter. Cash and deposits stood at 14.8 per cent of financial assets, well above the long-term average of 8.8 per cent.
• Foreign holdings of Australian shares rose by $39 billion in the September quarter to a record $648.1 billion in the September quarter. Foreigners held 44.1 per cent of Australian listed shares at the end of September, down from 45.2 per cent in the June quarter and down from the 20 year high of 46.8 per cent reached in the June quarter 2012.
• Listed shares accounted for 17.1 per cent of assets in the September quarter, up from 16.0 per cent in the June quarter but below the long-term average of 18.8 per cent.
• Australian non-financial private companies held $404.2 billion in cash and deposits at the end of September. Cash and deposits were 43.2 per cent of all financial assets in the quarter, down from 43.8 per cent of financial assets in the June quarter and below the 22-year high of 45.4 per cent recorded in the December quarter 2011. The long-term average is 39.1 per cent.

Industry employment:

• Economy-wide employment rose by 18,400 in the three months to November – the best quarterly result in a year.
• Employment fell in 11 of the 19 industry sectors. Employment rose most in Retail (up 40,700), followed by Health Care and Social Assistance (up 32,600) and Agriculture, Forestry and Fishing (up 26,700). Job losses in Construction totalled 37,500 while 35,400 jobs were lost in Professional, Scientific and Technical Services.
• The 40,700 jobs gained in Retail was the biggest quarterly rise for the sector in 16 years. While the Cconstruction sector recorded the largest quarterly job losses in over ten years.
• Healthcare remains the biggest employer with 1.42 million employees (12.2 per cent of the total) followed by Retail Trade (10.9 per cent) and Construction (8.8 per cent).

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.
• The Australian Bureau of Statistics (ABS) provides detailed labour market figures 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 are the implications for interest rates and investors?

• The strength in share markets and property prices has been the key driver behind the improvement in wealth levels. Higher wealth and firmer confidence should boost consumer spending in the months ahead.
• While Aussie consumers, businesses and superannuation funds held a high proportion of assets in cash and deposits at the end of September, there are signs that they are starting to take on ‘riskier’ assets. More cash will be put to work in shares and property in 2014. CommSec expects the ASX200 to reach 5400 by mid-2014.

Source – Savanth Sebastian, Economist, CommSec