According to fresh statistics from ABS and Commsec, household wealth in Australia has hit record highs, totalling $15,099.8 trillion as of June 2023. On a per capita basis, wealth increased by 2.1% to $567,632, barely shy of the record $574,807 observed in March 2022. Interestingly, Australians are holding more cash than the long-term average, with 23.31% of financial assets in cash and deposits.
But it’s not just numbers on a balance sheet that are making headlines; spending habits are shifting as well. In August 2023, retail spending in the Australian Capital Territory climbed by 0.6% to a record $676 million, representing a 5.5% increase from last year. Meanwhile, spending in Western Australia rose by 0.5% to reach an all-time high of $3,988.20 million, up 4% from the previous year.
Stephen Koukoulas, Head of Global Strategy TD and Advisor to the Prime Minister, paints a picture that includes both lights and shadows. “Thank goodness for the wealth effect. Imagine how bad the economy would be if wealth was falling?” However, he cautioned, “Dismal retail sales data—what Matilda effect? Spending in August 2023 is below where it was in November 2022! A retail recession. Job vacancies down 9% in just 3 months, -15% in the past year. The RBA rate hiking frenzy is looking more and more unnecessary.”
Koukoulas touches on an important point, which is the wealth effect. As values of assets like property, shares, and superannuation rise, consumer confidence generally tends to increase. This confidence often translates into higher spending, thereby fueling economic activity. Currently, shares and superannuation account for 27.15% of total household assets, slightly lower than the 20-year average of 28%. Additionally, just over 71% of household financial assets are invested in super or shares, in line with the 20-year average of 72.2%.
However, the positive financial behaviours brought on by the wealth effect might be counterbalanced by the less than stellar retail performance in some regions, as noted by Koukoulas. While consumer spending is high in specific areas like the ACT and Western Australia, the broader picture indicates pockets of stagnation and even regression. Job vacancies are down, and the recent interest rate hikes by the Reserve Bank of Australia now seem questionable given the mixed economic signals.
The wealth effect undoubtedly holds significance for future monetary policy decisions, as central banks must weigh consumer behaviour, asset values, and broader economic indicators when setting interest rates. Yet, the question remains: Is Australia’s wealth creating a sustainable economic environment or setting the stage for financial disparities and potential bubbles?
The prevailing wisdom suggests that the current state of affluence should be approached cautiously. Benefits are likely accruing mostly to those who already own substantial assets, thereby widening wealth gaps. Moreover, the volatility seen in the retail sector indicates that all is not well in the Australian economy. In summary, Australia’s financial landscape might be sunny for some but is looking increasingly cloudy for others. We might be swimming in a tide of increased wealth, but whether we’ll continue to float or start to sink remains to be seen.
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