Shares and property drive record household wealth

Finance & Wealth; Jobs by industry; Purchasing managers’ indexes

What happened? Total household wealth (net worth) rose by a record $735 billion or 5.8 per cent to a record high $13,433.7 billion in the June quarter. Wealth is up 19.7 per cent on a year ago – the strongest annual gain in over 11 years. Average (per capita) household wealth rose by $27,782 (or 5.6 per cent) in the June quarter to a record high $522,032, up 20.3 per cent over the year.

In seasonally adjusted terms, employment fell by 146,600 in the three months to August. Jobs fell in 11 of the 19 industry sectors. Over the 12 months to August, 398,400 jobs were added across 13 out of 19 industry sectors with 13.01 million people employed at the end of August, down from a record 13.16 million in May.

The preliminary Australian IHS Markit Manufacturing Purchasing Managers’ index (PMI) rose from a 14-month low of 52 in August to 57.3 in September. The Services PMI lifted from a 15-month low of 42.9 in August to 44.9 in September. The combined or composite PMI rose from a 15-month low of 43.3 in August to 46 in September. All readings were at 3-month highs, but indexes below 50 indicates a contraction in activity.

Implications: Aussie households have never been wealthier. The ‘twin’ wealth effects of rising home prices and superannuation balances propelled net household wealth and wealth per person to record highs in June quarter. Home and company share prices have soared during the pandemic due primarily to record-low interest rates. A recent report by Credit Suisse estimates that as many as 1.8 million Aussies are considered millionaires today, based on estimates of net household wealth with the number expected to grow to 3.1 million by 2025.

The data on employment by industry gives insights into which industries are growing the fastest as well as insights on the performance of the broader economy. The wealth data is important as a guide to future spending. Purchasing manager surveys are important in assessing the outlook for interest rates and spending.

What does it mean?

• Who wants to be a millionaire? Aussie households just keep getting wealthier. A combination of surging property prices and strong sharemarket gains saw total Aussie household wealth grow by 5.8 per cent or a record $735 billion in the June quarter. Australia’s total household wealth hit an all-time high of $13.4 trillion with wealth per person of $522,032 also sitting at record levels.

• According to the ABS, “Residential property assets contributed 4.5 percentage points to the June quarterly growth in household wealth, followed by superannuation balances and directly held shares, at 1.1 and 0.3 percentage points.”

• So how do you measure household wealth? Well net household wealth is estimated by taking the difference between the value of a household’s total assets and its liabilities or debts. So when household wealth increases, this refers to an overall lift in the value of a household’s assets, including: residential and investment properties; superannuation balances; shares and other financial assets; personal savings or bank deposits; and non-financial assets like art work.

• Of course, wealth and income are two different things. Income is referred to as wages, salaries, pensions and other government payments. So regular payments received by households are not considered to be wealth-generating assets, and therefore not included in the Bureau of Statistics (ABS) definition of household wealth.

• So while wage growth remains tepid, the value of assets is surging, supported primarily by record-low interest rates and government pandemic stimulus measures, such as HomeBuilder, and the labour market recovery through to June. Commonwealth Bank (CBA) Group economists estimate that Australians have amassed around $230 billion in excess savings during lockdowns, enabling those ‘stuck-at-home’ to invest in value-adding assets, such as property and shares.

• The ABS’ residential home price index, released earlier in the month, surged by 6.7 per cent in the June quarter, supported by stronger buyer demand than the levels of housing stock on the market. In fact, the total value of land and dwellings jumped by a massive $576.5 billion in the quarter.

• And the 7.7 per cent jump in the benchmark Aussie S&P/ASX 200 index pushed the value of shares up $34 billion with superannuation reserves surging by $140.8 billion in the June quarter. Solid employment growth in the quarter lifted superannuation transactions up by $29.4 billion.

• On the other side of the ledger, household liabilities rose by 1.8 per cent or $47.2 billion in the June quarter, driven higher by a $38 billion lift in housing debt (loans).

• Australia’s labour market recovery lost momentum in the three months to August due to extended Delta lockdowns in NSW, Victoria and the ACT. In fact over the three months to August, the number of jobs fell by the most in Accommodation and Food Services (down 65,000), followed by Education and Training (down 50,600), Arts and Recreation Services (down 49,300) and Retail Trade (down 45,700).

• So which industries have seen the most buoyant recruitment activity? Jobs rose by the most in Manufacturing (up 91,500), followed by Public Administration and Safety (up 41,500) and Health Care and Social Assistance (up 39,800) in the three months to August. While pandemic job-related gains were expected, the lift in factory worker jobs is encouraging and could continue with IHS Markit today reporting improved demand in September drove manufacturing firms to hire more staff.

Australian national accounts: Finance & Wealth – June quarter

• Total household wealth (net worth) rose by a record $735 billion or 5.8 per cent to a record high $13,433.7 billion in the June quarter. Wealth is up 19.7 per cent on a year ago – the strongest annual gain in over 11 years.

• Average (per capita) household wealth rose by $27,782 (or 5.6 per cent) in the June quarter to a record high $522,032 to be up 20.3 per cent over the year.

• Household assets rose by 5.1 per cent (or $782.2 billion) in the June quarter to $16,056.3 billion. Non-financial assets rose by 6.4 per cent ($576.2 billion) while financial assets rose by 3.3 per cent ($206.0 billion).

• Household liabilities rose by 1.8 per cent (or $47.2 billion) to $2,622.7 billion in the quarter. Housing loans rose by $38.0 billion while unincorporated business loans lifted by $8.7 billion.

• Households held a record $1,342.6 billion in cash and deposits at the end of June. Cash and deposit holdings represented 20.8 per cent of financial assets. The share of cash and deposits stands just below the 21.5 per cent average since the global financial crisis and long-run average of 21.5 per cent.

• Households held a record $1,180.3 billion in shares, up 3 per cent in the June quarter. Listed share holdings were 18.3 per cent of all financial assets in the June quarter, below the 19.5 per cent average since the global financial crisis as well as the long-run average of 22.2 per cent.

• Pension fund (superannuation fund) assets rose by $163.5 billion to $2,811.0 billion in the June quarter. Cash and deposits stood at 9 per cent of assets, below the 12.1 per cent average since the global financial crisis, but above the long-term average of 9.2 per cent.

• Foreigners held a record $790.9 billion of Aussie listed shares in the June quarter, up by $63.2 billion in the quarter. Foreigners held 31.3 per cent of total listed shares, below the long-term average of 34.2 per cent.

Jobs by industry – August

• In seasonally adjusted terms, employment fell by 146,600 in the three months to August. Jobs were shed in 11 of the 19 industry sectors.

• Over the three months to August, the number of jobs fell by the most in Accommodation and Food Services (down 65,000), followed by Education and Training (down 50,600), Arts and Recreation Services (down 49,300) and Retail Trade (down 45,700). But jobs rose by the most in Manufacturing (up 91,500), Public Administration and Safety (up 41,500) and Health Care and Social Assistance (up 39,800).

• Over the 12 months to August, 398,400 jobs were added with 13.01 million people employed at the end of August, down from a record 13.16 million in May.

• Over the year to August, 13 out of 19 sectors added jobs. The most number of jobs were added in Manufacturing (up 113,500), followed by Health Care and Social Assistance (up 98,500) and Other Services (up 95,500). But the Agriculture, Forestry and Fishing (down 52,100), Wholesale Trade (down 46,400) and Construction (down 38,200) industries lost the most jobs.

• Health Care and Social Assistance remains Australia’s biggest employer with 1.88 million employees (14.4 per cent of the total), followed by Retail Trade (1.26 million jobs or 9.7 per cent); Professional, Scientific & Technical Services (1.2 million or 9.2 per cent) and Construction (1.13 million or 8.6 per cent).

Purchasing Managers’ indexes (PMIs) – September

• The preliminary Australian IHS Markit Manufacturing Purchasing Managers’ index (PMI) rose from a 14-month low of 52 in August to 57.3 in September. The Services PMI lifted from a 15-month low of 42.9 in August to 44.9 in September. The combined or composite PMI rose from a 15-month low of 43.3in August to 46 in September. All readings were at 3-month highs, but indexes below 50 indicate a contraction in activity.

• According to IHS Markit economists, “The extension of Covid-19 restrictions into September continued to dampen business conditions in the Australian private sector, although the slight easing of restrictions was picked up in the latest IHS Markit Flash Australia Composite PMI, seeing the overall Composite Output Index contracting at a slower rate in September. This may also be suggesting that we are looking at early signs of a turning point. The employment index meanwhile pointed to higher workforce levels, which was a positive sign following the decline recorded in August, driven by the severe COVID-19 disruptions. That said, price pressures intensified once again for Australian private sector firms while evidence of worsening supply constraints gathered, all of which remains a focal point for the Australian economy.”

Published by Ryan Felsman, Senior Economist, CommSec