Rich and scared

Like me, CommSec Craig James is a man who likes to watch Australia’s wealth very closely.

In his latest interpretation of statistics from the Federal Treasury and the Australian Bureau of Statistics, James says Australian private wealth has never been higher, after it rose 1.3% in 2010 to $6 trillion.

The average Australian is now worth almost $267,000, almost double the level a decade ago, thanks to surging house prices and a rebound in the sharemarket since the GFC.

At the same time, per capita debt has hit a four-year low of just over $23,000.

Household balance sheets have rarely looked better, and yet consumer confidence in Australia remains in the doldrums.

What’s going on in the heads of Australian consumers?

“At present Aussie consumers are more focused on perceptions rather than reality,” James says.

“For most, the perception is that they are going backwards – the cost of living is rising, incomes aren’t keeping up and wealth levels are stagnating.”

“But the reality is that incomes continue to grow at a faster pace than prices while balance sheets are improving through record wealth levels and reduced debt levels.”

Basically, Australians are having a lot of trouble seeing past problems such as rising fuel and energy costs and, perhaps most importantly, the ever-present threat of rising interest rates.

Job security might be good, wages are ticking up and the economy is still heading in the right direction, but consumers just can’t shake that GFC mentality that they need to be careful and prepare for another shock in the form of rising interest rates.

That surprise rate rise in November last year appears to be burned into consumers’ memories.

What we need is a long period of interest rate stability. Most economists are predicting a rate rise in the second half of this year, but even that might not be far enough away from the point of view of nervous consumers – even a 25-basis point rise in late 2011 could send people back into their shells.

“Consumer ‘fundamentals’ continue to improve – the job market is healthy, wages are rising, wealth is at record levels and debt is being paid down,” James says.

“Consumers will start spending again, but it may take a long period of interest rate stability.”

The RBA has some pretty tense board meetings coming up.