Aussies Continue to Save Like Mad

Consumer savings set a record not seen since 1975

 Australian households are third in global debt.

 Will behaviour change in 2021?

The Australian government is in full PR/spin mode as the AFR pce below shows – with the end of stimulus payments approaching it seems households and small business will need to fend for themselves.

DEBT

Australian household came into Covid-19 with excessive household debt and they know it. This cannot be dismissed as some sort of anomaly which politicians tend to do. It means when a crisis develops many consumers hunker down.

SAVINGS

The ABS graph below is truly amazing and very telling – what will these consumers do in 2021?

Australian consumers have trebled their savings since 2018 – this is a sharp reversal from all other recessions since 1974. This includes the 1978/9 ‘oil shock’, 1987 ‘share market crash’, 1990/2 ‘recession we had to have’ and 2008/9 GFC.

This shows many consumers are fearful and very cautious – why else would the savings quickly jump to such a high level - double 2008/9?

Consumer’s savings peaked at $136 billion in March, another sign of the early response by consumers. Savings levels still track well above $110 billion according to APRA – while loans declined by $3.6 billion continuing the trend of declines every month since April.

What hope do banks/lenders have that these consumers will borrow in the next 2 years?

RBA’s REAL TIME PAYMENTS

In a recession RBA real time data is a vital insight into the real economy – it’s also very timely – the December numbers were out last week.

RTGS payments data covers many components of the economy including: wholesale debt securities, money market transactions, stock market transactions, all Australian dollar foreign exchange transactions, correspondent banking payments, interbank borrowing and lending, mortgage payments and property transactions, government payments and consumer payments – cheques, debit, credit, NPP, direct entry and prepaid cards.

The RTGS – Gross Settlement numbers are the daily average of transactions and values processed. December gross settlement system data continues to be bad – a trend for 10 months of 2020.

Dec 2020 vs Dec 2019 - payment volumes down 8.4%, value down 8.9%

 3 months to Dec - payments volumes down 10.5%, value down 9.3%

 Prior year increases are significant – 2019 was up 13.3% vs 2018 for transactions and 18.5% in value.

Therefore the swings and trends are important. The swings to achieve 2019 numbers -- December month 11.4% swing; 3 months 16.1% swing; 9 months 17.8%. This does not get back to trend lines however.

 Also comparison with key Asian economies (who have handled Covid-19 much better) in November showed 15.5% swing. 

AUSTRALIAN ECONOMY 

There are key parts of the Aussie economy which are simply not functioning - they include:

Migration – 262,000 new arrivals in 2019 worth $132 billion per year; inbound tourism - worth $66.8 billion per year; foreign students - worth $31.9 billion per year - add new car sales, cafes/restaurants, China trade war etc..... these total $272.9 billion or 19.2% GDP.

Many of these categories are big city earners such as migration, tourism, students etc - so that's trouble in 2021 or until the traffic rebounds in 2022.

Example of how bad the data is - Foreign Student ex ABS -- November 2020 there were 200 international student arrivals vs 40.530 in Nov 2019 (-99.7%); October 2020 there were 130 international student arrivals, a decrease of 50,700 students (-99.7%); September 2020 80 international student arrivals, a decrease of 45,220 students (-99.8%). These are appalling numbers and the same appear across all damaged sectors.

There are plus points - mining, agriculture, food/retail spend with possible internal travel - which add up to 9% of GDP - but it still leaves a massive gaps - which show up in RTGS numbers.

There are opportunities – get Aussie’s to spend on internal tourism rather than going to Bali, NZ etc also 40,000 Australians stuck overseas – many would bring purchasing with – others will require welfare. 

Every new outbreak or problem with Covid-19 just feeds the narrative for Australian’s to remain very cautious.

While the Fed Government tries to spin its way to success these gaps certainly won’t go away any time soon.

The $200b savings war chest to drive economic recovery

John Kehoe AFR Senior writer Jan 13, 2021 

Households and businesses have stockpiled more than $200 billion of extra savings and asset prices have recovered, giving the Morrison government confidence there is plenty of financial firepower to drive the economic recovery as emergency stimulus spending winds down.

Treasury analysis suggests the economy will avoid falling off a cliff when the $90 billion JobKeeper program finishes at the end of March, because people will tap into record household savings propped up by government stimulus spending.

 Household banking deposits jumped by almost $113 billion or 11.4 per cent from the start of January last year to the end of November, according to Australian Prudential Regulation Authority data. Non-financial business deposits increased by almost $104 billion or 17.6 per cent.

The savings boost was largely underwritten by the Morrison government's pledged $250 billion in stimulus – $143 billion of which has already been delivered. Much of it is yet to be spent by recipients.

The unleashing of pent-up consumer demand as health restrictions ease will take time to fully flow into economic activity, assuming people have the confidence in management of the virus to venture out to spend.

 Updated Treasury modelling shows the government's fiscal support will add 5 per cent to economic output in 2020-21 and boost gross domestic product by 4.5 per cent in 2021-22, compared with the negative and flat GDP growth rates that would have occurred without any stimulus spending.

Overall, GDP is forecast to eke out 0.75 per cent growth in the current financial year and expand by 3.5 per cent in 2021-22, consistent with the mid-year budget update in December.

While the government is keeping open its options for more limited and targeted support should the economic circumstances warrant it, Treasurer Josh Frydenberg used the new Treasury analysis to push back against calls for the JobKeeper wage subsidy to be extended.

Mr Frydenberg said the unprecedented economic support provided by the government during the crisis meant that even as JobKeeper and other temporary emergency support measures tapered off, a fiscal cliff would be avoided.

"With an additional $200 billion sitting on household and business balance sheets compared to the start of last year, there is a huge sum of money available to be spent across the economy helping to create jobs and maintain the momentum of our economic recovery," he said.

"Australia has performed better on both the health and economic front than almost any other nation.The Morrison government's economic recovery plan is working.With the JobMaker hiring credit, personal income tax cuts, investment incentives and a range of other measures, our economic comeback will continue."

Employers are on the hunt for more than 250,000 new workers as job vacancies jump to pre-pandemic levels, new data on Wednesday revealed.

 Shadow Treasurer Jim Chalmers said tourism and hospitality were still struggling from COVID-19 and Labor wanted to make sure workers in those industries were not left behind.

"That means the government should be considering targeted support for those businesses, small businesses and industries and areas in Australia who are doing it tough," he said.

"The Treasurer actually has it in his powers under the existing legislation to tweak the rules and eligibility for JobKeeper and he should be looking for ways to do that."

High household savings

The household savings ratio hit a record 22.1 per cent in the June quarter and eased slightly to a still high 18.9 per cent in the September quarter – about double the stockpiling during the 2008 global financial crisis.

The government is betting on a baton change from its emergency temporary supports such as JobKeeper, an enlarged JobSeeker unemployment benefit and $35 billion in cash flow support to businesses.

It hopes other initiatives such as business investment incentives, the JobMaker hiring credit, additional infrastructure spending and income tax cuts will strengthen private sector activity.

The federal government's direct fiscal support will fall from a total of 6.9 per cent of nominal GDP in 2020-21 to a total of 2.4 per cent of GDP in 2021-22.

Household wealth rebounds

A recovery in household wealth also has the government confident that the recovery is on track.

Household net wealth fell by 2 per cent in the March quarter when the pandemic hit, wiping about $350 billion off the value of people's financial investment portfolios.

Treasury said these losses had been largely recovered as global share markets quickly rebounded to around record highs.

House prices have also recovered after initial falls earlier last year, as record low interest rates and limited supply take hold.

The recovery in household wealth has been much faster than the 2008 global financial crisis, which had a much longer-lasting impact on housing and equity markets, according to Treasury's analysis.

Workers in demand

The easing of COVID-19 restrictions and reopening of the economy late last year underpinned a 23 per cent rise in job vacancies in the three months ended November 30, the Australian Bureau of Statistics said on Wednesday.

Business demand surged for positions in arts and recreation services, accommodation and food services, and retail trade, which were hit hard by earlier health-related shutdowns.

The number of unfilled available positions rose by 48,000 in September-November, after a sharp rise of 77,000 roles in August as COVID-19-related restrictions were further relaxed across Australia, said Bjorn Jarvis, ABS's head of labour statistics.

 "There were 254,000 job vacancies in November, which was higher than the pre-COVID level in February," he said. "This reflected the pace of recovery in labour demand in the second half of the year and labour shortages in some industries."

Job vacancies in the private sector increased by 24 per cent over the three months, and by 17 per cent in the public sector.

On an annual basis, job vacancies were 12 per cent higher than November 2019.

A separate report showed engineering construction activity fell 1.7 per cent in the three months ended September 30, dragged lower by falls in private-sector work that failed to offset a rise in government projects.

More positively, the value of work begun in the September quarter jumped 13.9 per cent to $19 billion.

November's official unemployment rate stood at 6.8 per cent in November, with the JobKeeper wage subsidy artificially suppressing the jobless rate.

Treasury and the Reserve Bank of Australia expect the jobless rate to peak a bit above 7 per cent in the first quarter of this year.

Separately, job ads surged 9.2 per cent in December to rise above pre-pandemic levels, according to ANZ data published last week. More than 159,000 vacant positions were advertised last month, the highest number in 18 months.

It took the number of job ads to 4.1 per cent above pre-COVID-19 levels recorded in February.

Remarkably, the total number of jobs advertised in 2020 was 5 per cent higher than in 2019, the first annual increase in two years.