Wealth down but outlook bright
Modeller’s database
- Wealth held by Australians in property, shares and other assets has fallen for the fifth straight quarter. In real terms wealth fell 11.3 per cent over the past year. The improvement in equity markets and pick up in property prices should ensure that the latest result is the low point for wealth levels.
- CommSec estimates that the average Australian has wealth equivalent to just under $217,000, down over $33,500 since the global financial crisis began. The new wealth figures were contained in the “Modellers’ Database”, which was released today by Federal Treasury and the Australian Bureau of Statistics. Other data showed some easing in tight rental conditions as more first homebuyers enter the market.
- For the first time there is evidence of the impact of the share market slump on dividends, and therefore incomes. Over the past six months the value of dividends received has slumped by a record 37 per cent.
What does it all mean?
- The effects of the global financial crisis have had a profound impact on the wealth levels of Australians. Over the past year the average wealth has fallen by over $24,000, while in inflation adjusted terms wealth levels have now fallen by almost 13 per cent over the past year. The latest Treasury data essentially quantifies and brings home the profound impact of the global economic slump. In fact since the start of the crisis the average Australian has lost – at least on paper - just over $33,500.
- Importantly CommSec expects that wealth levels rose in the June quarter. House prices have risen over the last few months, while equity markets have improved substantially. The bottom line is the slide in wealth is over.
- The sharp decline in wealth levels has no doubt had an adverse impact on the domestic economy, with Australia barely skirting a domestic recession. Over the last year weaker household balance sheets resulted in sharp falls in consumer spending, cascading to weaker business profits and in turn rising unemployment.
- The time frame when looking at wealth levels is important. No one is disputing that wealth levels have taken a large hit over the last 18 months, however the near doubling of wealth levels over the past 10 year will provide a buffer for many Australians. And despite the unprecedented five straight quarters of declining wealth levels, there is likely to be some good news in coming quarters.
- Interestingly the slump in the share market has not only hit wealth but also income. For the first time new figures have confirmed the sharp fall in dividends paid by companies. Over the last six months the value of dividends received has fallen by a record 37 per cent. For the average Australian this only amounts to a drop of $125 but clearly the impact has been felt hardest by retirees.
- The latest data has also confirmed Federal Treasury’s estimate of full employment (NAIRU) is still holding close to 5 per cent and suggests that the current level of unemployment – 5.8 per cent is a rather comfortable level for an economy that is attempting to maintain healthy growth. Over most of 2008 employment was at an unsustainable level - beyond full employment and thus resulting in the inflationary environment noted last year.
- The worst in terms of job losses has more than likely passed. While employers are not hiring staff they are using flexible work practices to hold onto current staff. New data from Federal Treasury showed hours worked in the economy fell to record lows.
- CommSec expects unemployment to peak at around 6.5-7 per cent rather than the 8-8.5 per cent expected by authorities. The absence of major job shedding and near 30 year low vacancy rates will support - property prices – the major component of the wealth statistics.
What do the figures show?
- Federal Treasury’s “Modellers’ Database” shows that Australia’s private sector wealth stood at $4,710 billion as at the end of March 2009, down 0.3 per cent over the quarter. It was the fifth straight quarter of falling wealth levels.
- CommSec estimates that per capita wealth stood at $216,700 as at the end of March, down $22,900 or 9.6 per cent over the past year. Wealth peaked at $250,185 in December 2007.
- In real terms, CommSec estimates that private sector wealth fell by 1.2 per cent in the March quarter and by 12.6 per cent over the past year.
- By comparison, private sector debt rose in the quarter, up 0.6 per cent to $623.6 billion. The Australian dollar remained relatively weak throughout the quarter lifting foreign debt levels in the March quarter. Per capita debt rose by 0.3 per cent in the quarter from $28,635 to $28,684.
- Unfortunately no detailed break-up is provided of the quarterly wealth figures calculated by Federal Treasury.
- Despite the decline over the past year, wealth levels of Australians are almost double those of a decade ago. Since 1999, wealth has risen in nominal terms by 84 per cent with real wealth up by 64.1 per cent.
- Other data in the Modellers’ Database showed the rental vacancy rate rising marginally from 1.4 per cent to 1.6 per cent in the March quarter, remaining still well below ‘normal’ levels of 2-3 per cent and near 30-year lows.
- The NAIRU (non-accelerating inflation rate of unemployment) which is effectively the Federal Treasury’s assumption of full employment has risen from 4.92 per cent in the December quarter to 5.02 per cent in the March quarter.
- In the March quarter Federal Treasury estimated that the value of dividends received by persons fell by 25.9 per cent to a five year low of $4,316.8 million. Dividends received are down by a record 37 per cent over the past six months.
What is the importance of the economic data?
- The Australian Bureau of Statistics (ABS) and Federal Treasury release the Modellers’ Database each quarter. The ABS notes that “the Modellers' Database consists of over 500 quarterly times series constructed from the NIF and TRYM econometric models. They are useful to economists, econometricians, financial analysts and students.
What are the implications for interest rates and investors?
- The improvement in house prices in the first half of 2009 and also the sharp pick up in the share market over the last couple of months should help support wealth levels going forward.
Source Savanth Sebastian, Economist, CommSec
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