Wealth down but outlook bright by alendar


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									Economic Insights

                                                                                                                                                           July 15 2009

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

Savanth Sebastian – Equities Economist (Author)
(612) 8223 7130 (work)

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Economic Insights Wealth down but outlook bright

    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
•   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
•   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
•    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

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Economic Insights Wealth down but outlook bright

     assumption of full employment has risen from 4.92 per cent in the December quarter to 5.02 per cent in the March
•    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

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.

Savanth Sebastian Economist, CommSec
Work: (612) 8223 7130

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