This morning’s two key economic data releases from the ABS on retail sales and dwelling approvals confirm existing trends, which are bad for department stores and the housing industry but good for other sectors.
Retail sales grew at 0.2% seasonally adjusted (0.3% trend) in October — about on par with growth throughout most of this calendar year. But as always with retail, it pays to look behind the headline number to see which sectors are faring well and which aren’t.
As we’ve seen consistently, department stores and clothing, footwear and accessories are struggling. They shrank by 0.5% and 0.7% respectively. But food retailing, cafes and restaurants and household goods all grew by 0.4% and 0.7%. Western Australia is the boom state for retail with 0.7% growth, followed by South Australia (0.5%) and NSW (0.4%), which has been a disaster area for retail over the last couple of years.
Dwelling approval data also confirmed an existing trend — residential construction is falling into a deep, deep hole. The trend and seasonally adjusted figures are pretty stark:
Private sector homes fell over 7% in seasonally-adjusted terms and apartments and other non-house dwellings fell nearly 17%. This is fall-off-a-cliff stuff.
It’s also the price to be paid for the mining boom. The construction industry is continuing to put on workers — over 40,000 jobs in net terms since the start of 2010. They’re clearly not building houses. Instead, they’re building mining and mining-related infrastructure — engineering-related construction surged nearly 50% in the September quarter in seasonally-adjusted terms. The housing sector, crimped by interest rates, a sluggish housing sales market and oversupply in south-eastern Queensland, as well as long-term factors like housing infrastructure provision and problems with development approval processes, is getting hammered.
It’s not doing our long-term housing supply problems any good, but a buoyant housing industry at the same time as a booming engineering construction sector is unsustainable and would be putting significant pressure on inflation and supply constraints. That’s one for the renters to think about next time they face a rent rise because rental accommodation is so tight in cities like Sydney.
Some further data on private investment from the ABS yesterday also provides some context for the we’ll-all-be-rooned cries from the manufacturing sector. They again confirmed that the resources boom powers onwards and upwards. Media reports focused on the obvious story and few gave scant coverage to the solid performance of manufacturing, and failed to relate it to the moanings and groanings of the past year or more.
Overall business investment rose 12.3% in the September quarter, the biggest increase in more than four years. Real capital expenditure in the quarter was $37.3 billion, seasonally adjusted. It came after separate data last week from the ABS showed a 12.8% jump (the biggest on record) in construction work done in the quarter.
The latest estimate for business investment spending for the financial year ending June 2012 was $158.03 billion in current prices, with mining accounting for over half of that figure. All heady stuff and it should help third quarter GDP to rise by between 1% and 1.5% in the national accounts next Wednesday.
But while mining was the star in the ABS data, the performance of the manufacturing sector, supposedly beaten down by the impact of sluggish demand and the high dollar, was quite solid. In fact for a sector in intensive care, it was remarkably robust. The trend series for manufacturing investment rose nearly 5.8% in the September quarter from the three months to June, to $3.53 billion. That was due to a 7.7% lift in the investment in buildings and structures and a 4.5% boost in spending on plant and machinery. The more volatile seasonally adjusted version of manufacturing investment was even better, up 9.8%, which is almost “boom” like.
And the September quarter trend figure was 19% above the figure in the same quarter of 2010, despite the impact of the strong dollar, restructurings and job losses at companies like BlueScope.
Looking to the coming year, manufacturing capex is expected to rise to $13.67 billion, 1.4% above the estimate in the June quarter. That compares with spending of $12.34 billion in the 2010-11 financial year and $11.74 billion the year in 2009-10. That’s a possible increase of 18% in the two years, at a time when the dollar rose more than 20%.
Now, manufacturing these days is only a small (9%) part of the economy and employment, but it’s not dying as some in the business world and unions would have you believe. It is restructuring and changing as more and more companies realise the dollar will remain at or above parity, with the greenback $US1 for much longer than they were previously thinking.