The national accounts for the March quarter, due on Wednesday, would normally excite plenty of interest, but they’re of only historical interest at this point. There’s a lot of speculation around whether growth will be flat or negative and, if the latter — which most economists expect — negative by how much. But it’s still data from a mostly pre-COVID-19 world.
Of greater importance was last week’s data from the Australian Bureau of Statistics (ABS) on private investment, which showed a 1.6% fall in actual expenditure in the March quarter (to be down a nasty 6.1% for the year to March) and an even sharper fall of 8.8% in the second estimate for expenditure in the coming 2020-21 year.
The expected expenditure shows businesses plan investment of just $90.89 billion for the year, with falls across the board — mining down 6.8%, manufacturing down 7% and falls in buildings (11.6%) and structures and plant and machinery (4.5%).
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The expenditure survey doesn’t capture all private investment — it misses a lot of spending by small to medium businesses and in areas such as health and education. The size of the forecast falls could be even larger given the nervousness of small to medium businesses, especially about the future of the JobKeeper scheme.
The expenditure data is especially grim given other data last week showed the value of construction work done falling 1% in the March quarter, following a bigger fall in December. That was a little better than forecast, but probably as good as it will be for the next year or more given the expenditure data.
Reserve Bank governor Philip Lowe flagged this as an issue of concern when he appeared before the Senate’s COVID-19 committee last week:
What we’re also seeing is a decline in employment in some industries that kept jobs going for the first couple of months because the firms had a backlog of work. Many businesses, particularly in construction and professional services, had a pipeline of work, so when the shutdown occurred that work could be done. But what we’re hearing through our liaison is that that pipeline is being worked off. As that pipeline gets worked off, if it is not replaced by new jobs and new contracts, we could see weakness in construction and professional services.
That’s why the government is, sensibly, preparing a construction industry stimulus package, to prop up one of our biggest employers.
Infrastructure spending being brought forward will help the civil engineering end of the industry, but residential construction is facing a sharp downturn. Home buyer grants and even home renovator grants are being trailed in the media, though the Masters Builders Association, the CFMEU and welfare groups have all called for a focus on social housing.
Apart from its social benefits, social housing also has less of a risk of merely bringing forward private expenditure that would have occurred anyway, or trying to stimulate spending by householders too worried about their job prospects to risk building a house or undertaking a major project.
The government has some time to get it right, but whatever it spends, it will need to be substantial to restore a pipeline that was petering out even before the pandemic arrived.