In his weekly market update Craig James, Chief Economist for Commsec explains that based on latest data on financial wealth certainly suggests that Aussie households are sitting pretty.
Here’s what he had to say:
Record wealth! Job market improves
- Record wealth: Total household wealth (net worth) stood at a record $7,670 billion at the end of March, up $137.9 billion over the quarter – the biggest quarterly rise in four years. In per capita terms, wealth rose to a record $327,263 in the March quarter, up $4,248 over the quarter.
- Households held a record $840.4 billion in cash and deposits at the end of March. Cash and deposit holdings represented 21.9 per cent of financial assets, above the decade average of 20 per cent. Pension funds held 14.6 per cent of assets in cash and deposits, above the long-term average of 8.8 per cent.
- Improving job market: The number of job vacancies rose by 2.6 per cent in seasonally adjusted terms in the three months to May. After sliding for 2½ years job vacancies have lifted over the past nine months in smoothed trend terms.
- The Financial Accounts data is important for consumer confidence and spending, particularly on big ticket items. The job vacancies data is important for retailers and consumer-focussed sectors.
What does it all mean?
The latest data on financial wealth certainly suggests that Aussie households are sitting pretty.
Not only has household wealth levels lifted to fresh record highs but generational-low interest rates are also reducing borrowing costs across an array of sectors.
The global financial crisis caused the biggest ever drop in wealth for Australian households, however wealth levels have been repaired over the past couple of years and have hit new highs.
Australia’s financial wealth lifted by almost $138 billion in the March quarter.
Interestingly the improvement in wealth levels and low interest rate environment over the past year has supported a modest lift in consumer activity.
[sam id=37 codes=’true’]However given the improvements in economic conditions and household balance sheets, you would be forgiven for assuming that consumers’ confidence was much more optimistic than the non-plussed outlook that surveys show. Interestingly almost 22 per cent of total household assets are being held in cash and deposits – well above the decade average of 20 per cent.
As the Reserve Bank has highlighted on many an occasion, 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 is likely to see households continue to invest in other asset classes and spend a little bit more freely.
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, the key hurdle is an ongoing improvement in profitability.
Over the coming year CommSec expects Aussie businesses (outside of mining) to feel more confident to ramp up investment plans.
Australian superannuation funds are holding well over 1½-times 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 that 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.
With term deposit rates offering lower returns than growth assets, it is likely pension funds will allocate a larger proportion of inflows to listed property funds and equity markets.
Over the past few years, foreign investors have become more prominent investors in our companies. At the end of the March quarter, foreigners owned around 43 per cent of Australian listed companies, easing further from the 20 year highs reached in the June quarter 2012.
There are further signs that unemployment has peaked. Job vacancies have lifted, adding to previous data showing a lift in newspaper advertisements and internet listings.
A lift in new jobs and improvement in job security will underpin consumer spending, home purchases and building.
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