Ignore the gloom and doom — yesterday’s capital expenditure estimates from the Australian Bureau of Statistics really didn’t suit the “we’ll all be rooned” narrative that emerged from some parts of the “national reform summit”.
Overall investment fell by a seasonally adjusted 4% in the three months to June 30. True, that was weaker than market forecasts for a fall of 2.5%. But it was an improvement on the March quarter, where the contraction was revised lower to a fall of 4.7%, from one of 4.4% in the original report. It is also the third consecutive quarter of contraction.
But more important than what has been spent in the quarter or year just past is the amount of investment planned for the year ahead. In this case, yesterday’s report contained the third estimate of spending for 2015-16, which was $111 billion — up nearly 10% on the second estimate, although still down 23.4% on the comparable estimate for 2014-15 (that is, a year ago business planned 23.4% more investment than they are at the moment).
But that downturn can be sheeted home to the collapse of the mining investment boom. When you look at what companies in manufacturing and other industries are planning to do, there is the first glimmer of a rebound, and data the Reserve Bank has been long waiting to see in these quarterly reports. It’s tenuous, but there are definite signs of a turnaround in spending plans outside of mining and resources. Investment in manufacturing in Estimate 3 for 2015-16 was $7.949 billion, down 1.3% from Estimate 3 for 2014-15, but 24.0% higher than Estimate 2 for 2015-16 of $6.273 billion. As the Australian Bureau of Statistic noted, equipment, plant and machinery is up 24.6% and buildings and structures 22.4% higher than the second estimate for 2015-16. More importantly, it is a significant rise on the 10.2% rise seen in Estimate 2 in spending on equipment, plant and machinery, and the 10.5% fall in spending on buildings and structure.
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And it was a similar story for other selected industries (such as power utilities) — Estimate 3 for other selected industries in 2015-16 is $52.94 billion. This was 5.7% lower than Estimate 3 for 2014-15, but its a huge 17.2% higher than Estimate 2 for 2015-16 of $45.568 billion. Buildings and structures were estimated to be 18.4% higher and equipment, plant and machinery is 16.1% higher than the corresponding second estimates for 2015-16, which were 6.9% and 6.3% respectively.
Now, these increases won’t go anywhere near replacing the shortfall from mining, but they are nevertheless much better than expected — and sign that capital hasn’t gone “on strike”, as today’s ridiculous AFR headline claimed, but seems to be recovering its nerve.
And remember, ABS capex data understates non mining investment — and probably won’t pick up the anticipated upturn in spending triggered by the tax changes in the May budget. Senior RBA officials have been making the point in recent speeches how a lot of investment is missed, especially by small and medium businesses, in the data. There are unofficial estimates that up to half of private non-mining investment is missed by the capex survey. Capturing that data would be handy, but expensive.
On Wednesday, ABS released data on the value of construction work done in the quarter. That showed a surprise rise of 1.6% to $49.81 billion, seasonally adjusted with the value of engineering work done offseting a fall in the value of home building and residential construction in the quarter. Some economists trust the data in this release more than they do (for accuracy and timeliness) in the capex report from yesterday. But either way, the picture is brighter than some silly headlines would suggest.