New business investment rose by 3.4 per cent in the June quarter, in line with forecasts. Spending on buildings rose by 4.8 per cent in the quarter while spending on equipment lifted by 1.2 per cent.
- Mining investment rose by 10.0 per cent while manufacturing spending fell by 3.8 per cent and spending by other industries fell by 4 per cent. Investment spending rose in four of the eight state/territory economies.
- The third estimate of investment for 2012/13 was $181.533 billion, up 4.7 per cent on the second estimate. This was the weakest upgrade in 19 years. Expected spending is up 20.8 per cent on a year ago.
- Dwelling approvals slump: Dwelling approvals slumped by 17.3 per cent in July – the third fall in four months. House approvals rose by 1.6 per cent while ‘lumpy’ apartment approvals fell by 40.5 per cent.
What does it all mean?
- The latest economic data is a literal dog’s breakfast. Business spending was up, but dominated by mining. Investment plans are healthy but cracks are appeared. And residential building remains in the doldrums.
- The Reserve Bank certainly has some work on its hands to disentangle the various parts of the economy. Mining states remain in strong shape, but non-mining states aren’t investing or building new homes. Clearly the Reserve Bank needs to keep rate cuts on the agenda.
- The mining states have still plenty of work to go on with. But the same can’t be said for non-mining states and industries. Investment in the manufacturing sector and service industries has now fallen for three straight quarters.
- Cracks are starting to appear in the investment outlook. Usually investment plans lift by around 11 per cent at this time of the year. But the upgrade was only 4.7 per cent – the weakest upgrade in almost 20 years. The resource boom may not be ending, but more businesses are re-assessing spending plans.
- In terms of residential building, it has been all said. Federal, state and local governments must come up with an action plan.
What do the figures show?
- Business investment (spending on buildings and equipment) rose by 3.4 per cent in the June quarter, in line with forecasts. Spending on buildings rose by 4.8 per cent in the quarter while spending on equipment lifted by 1.2 per cent. Investment is up 27.4 per cent with buildings up 45.2 per cent and equipment up 5.7 per cent.
- Mining investment rose by 10.0 per cent while manufacturing spending fell by 3.8 per cent and spending by other industries fell by 4 per cent.
- Investment fell in four of the eight states and territories in the June quarter. The biggest increase was in the Northern Territory (up 56.7 per cent), followed by ACT (up 14.9 per cent), Western Australia (up 9.5 per cent), and Queensland (up 6.2 per cent). Spending fell most in Tasmania (down 10.6 per cent) followed by South Australia (down 3.3 per cent), NSW (down 3.0 per cent) and Victoria (down 2.4 per cent).
- The overall deflator for investment goods rose by 0.6 per cent in the June quarter. The cost of buildings and structures rose by 1.2 per cent while the cost of equipment fell by 0.8 per cent.
- Over the year, the cost of investment goods rose by 1.6 per cent. The cost of buildings rose by 2.0 per cent while the cost of investment equipment fell by 1.6 per cent.
- In 2011/12 investment totalled $158.088 billion, up 29.9 per cent over the year.
- The third estimate of investment for 2012/13 was $181.533 billion, up 4.7 per cent on the second estimate and the softest upgrade since 1993/94. But expectations are still up 20.8 per cent on a year ago.
- Dwelling approvals slumped by 17.3 per cent in July – the third fall in four months. House approvals rose by 1.6 per cent while ‘lumpy’ apartment approvals fell by 40.5 per cent.
- Dwelling approvals fell in all the six states in July. Victoria led the falls with approvals down by 29.4 per cent followed by Queensland (down 19.7 per cent), NSW (down 9.4 per cent), Western Australia (down 4.8 per cent), Tasmania (down 4.5 per cent) and South Australia (down 1.4 per cent).
- The value of all commercial and residential building approvals fell by 19.5 per cent in July after slumping by 18.5 per cent in June. Residential approvals fell 21.1 per cent with commercial approvals down 17 per cent.
What is the importance of the economic data?
- “Private New Capital Expenditure and Expected Expenditure” is released quarterly by the Bureau of Statistics. The figures show both actual and expected spending by businesses on tangible assets such as new buildings, machinery and office equipment. The figures are obtained after sampling 8,000 private business units.
- The Bureau of Statistics’ monthly Building Approvals release contains figures on local council approvals to build residential structures such as homes and units as well as commercial premises such as offices and shops. Approval is one of the first stages of the construction ‘pipeline’ and is thus a key leading indicator of future activity. An increase in approvals would point to stronger future activity for construction-related companies.
What are the implications for interest rates and investors?
- Activity in the mining sector will remain firm for some time yet. But outside the mining sector, businesses remain cautious and refuse to invest. The Reserve Bank may have more to do in cutting rates.
- If global economies stabilise and consumers spending again then businesses may get their mojos back. Certainly businesses are cashed up and it is likely that commercial vacancy rates will fall in coming years due to the lack of building.
- The firm Aussie dollar is acting to support equipment investment by firms and spending should lift in the September quarter with Government assistance payments to small businesses.