Biggest lift in services investment in 7 years

Business investment; Average weekly earnings

• Softer investment: New business spending on buildings or equipment fell by 2.2 per cent in the December quarter after a 0.6 per cent increase in the September quarter. Expected business investment in 2014/15 is $152.7 billion, down 8.6 per cent on a year ago.
• Non-mining spending: Investment outside mining and manufacturing hit a record high of $62 billion in 2014, up 10.7 per cent on the year and the strongest calendar year gain in seven years.
• Average weekly ordinary time earnings rose by 1.6 per cent in the six months to November 2014 to be 2.8 per cent higher than a year ago. Male wages rose by 3.8 per cent over the year while female wages rose by 1.7 per cent over the year.
• Highest wages: The average wage stands at $76,804. The highest average wage can be found in the Mining sector at $129,714 per year. Next highest is Professional, scientific & technical services ($93,350), Finance & insurance services ($89,736), and Information media & telecommunications ($86,913).

What does it all mean?

• It is happening. Investment outside the mining sector is picking up, balancing the fall in spending by the mining sector. In other words the “baton pass” is happening. In fact investment outside mining and manufacturing rose by 10.4 per cent over calendar 2014, the fastest calendar year growth in seven years. And investment outside mining and manufacturing stands at record highs.
• Unfortunately the lift in non-mining investment is not sufficient as yet to cover lost spending by the mining sector. So business spending looks like continuing to be a weight on Australia’s economic growth performance. And while the Reserve Bank could cut rates again, it is far from certain that this would have a measurable impact in further lifting business spending.
• As highlighted yesterday by the wage price index, wage growth at present can be regarded as OK at best. Wages are still growing, and out-pacing inflation, but not by a large margin. Still, real wage growth exists, while lower petrol prices and lower borrowing costs are also supporting spending power.
• The good news is that modest growth in wages combined with increased productivity should lead to higher employment over 2015.
• The wage gap across industries remains significant. The average wage in the mining sector stands at almost $130,000 while the average wage across the hospitality industries of motels, cafes and restaurants stands at almost $54,000 with workers in retail industries not faring much better in the pay stakes.
• It is hard to fathom, but apparently wages in the challenged manufacturing sector grew by 4.9 per cent over the past year – the fastest of all industries and well ahead of inflation.

What do the figures show?

Private business investment

• Overall: Business investment (spending on buildings and equipment) fell by 2.2 per cent in the December quarter after rising 0.6 per cent in the September quarter. Spending on buildings fell by 2.6 per cent in the quarter while spending on equipment fell by 1.3 per cent. Investment is down 3.6 per cent over the year with buildings down by 7.3 per cent while equipment is up by 4.7 per cent.
• Sectors: Mining investment fell by 5.7 per cent in the December quarter while manufacturing spending rose by 4.0 per cent and spending by “other selected industries” rose by 1.4 per cent.
• Over 2014, investment outside mining and manufacturing hit a record high of $62 billion, up 10.7 per cent on the year and the strongest calendar year gain in seven years.
• States: In seasonally adjusted terms investment fell in five of the eight states and territories in the December quarter. The biggest rise was in Victoria (up 5.4 per cent), followed by NSW and South Australia (both up 3.4 per cent). Investment fell most in ACT (down 13.7 per cent) from Queensland and Tasmania (down 8.5 per cent), Northern Territory (down 5.4 per cent) and Western Australia (down 0.7 per cent).
• Investment in South Australia hit record highs in the year to December.
• Prices: The overall deflator for investment goods was flat in the December quarter after rising by 0.3 per cent in the September quarter. The cost of buildings and structures rose by 0.2 per cent while the cost of equipment fell by 0.4 per cent. Over the year, the cost of investment goods rose by 0.9 per cent. The cost of buildings rose by 1.7 per cent while the cost of investment equipment fell by 0.7 per cent over the year to December.
• Forecasts: The fifth estimate for investment in 2014/15 is $152.656 billion, down 8.6 per cent on the fifth estimate for investment made for the previous (2013/14) financial year. But the investment expectation is up 0.4 percent on the fourth estimate made for the current 2014/15 financial year. The investment expectation for 2014/15 has been upgraded 21.8 per cent so far – the strongest result in four years. The first estimate of investment in 2015/16 is $109,799m. This is 12.4 per cent lower than the first estimate for 2014/15.

Average weekly earnings

• Average weekly ordinary time earnings rose by 1.6 per cent in the six months to November 2014 to be 2.8 per cent higher than a year ago. Male wages rose by 3.8 per cent over the year while female wages rose by 1.7 per cent over the year.
• Average weekly total earnings rose by 1.3 per cent over the year. Average weekly cash earnings (including salary-sacrificed amounts) rose by 3 per cent over the year to November.
• The average wage in November 2014 was $76,704 while average cash earnings were $79,477.
• Wages rose most over the year in Manufacturing (up 4.9 per cent), Financial & Insurance Services (up 4.6 per cent), Transport, Postal and Warehousing (up 4.4 per cent), and Professional, Scientific and Technical Services (up 3.7 per cent).
• Wages were weakest over the past year in Arts & Recreation Services (down 2.2 per cent), Accommodation and Food Services (down 1.1 per cent) and Administrative and Support Services (down 0.7 per cent).
• Across states & territories, we have calculated average annual wages as follows: NSW $77,600, Victoria $72,623, Queensland $75,759, South Australia $70,013, Western Australia $87,001, Tasmania $65,874, Northern Territory $75,603 and ACT $88,509.
• The highest average wage can still be found in the Mining sector at $129,714 per year. Next highest isProfessional, scientific & technical services ($93,350), Finance & insurance services ($89,736), andInformation media & telecommunications ($86,913).
• The lowest average wage is obtained by workers in the Accommodation and food services sector($53,934), followed by Retail trade ($55,307) and “Other services” ($57,002).
• “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 ABS publishes the Average Weekly Earnings (AWE) series on a six-monthly basis. While the Wage Cost Index allows analysis of wage movements from quarter-to-quarter, the AWE series is best seen as a measure of actual dollar figures for wages. But average weekly earnings figures can be distorted by changes such as the relative growth of high-paid to low-paid jobs and the cashing out of bonuses in ordinary earnings.
• The Reserve Bank can cut interest rates if it feels that it would make a difference. However it may be that creative investment incentives need to be examined by state and territory governments to try and kick start ‘animal spirits’ in the business sector. Sometimes markets fail or are inefficient, and at present low interest rates and strong balance sheets are not tempting businesses to spend with more gusto.

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 ABS publishes the Average Weekly Earnings (AWE) series on a six-monthly basis. While the Wage Cost Index allows analysis of wage movements from quarter-to-quarter, the AWE series is best seen as a measure of actual dollar figures for wages. But average weekly earnings figures can be distorted by changes such as the relative growth of high-paid to low-paid jobs and the cashing out of bonuses in ordinary earnings.

What are the implications for interest rates and investors?

• The Reserve Bank can cut interest rates if it feels that it would make a difference. However it may be that creative investment incentives need to be examined by state and territory governments to try and kick start ‘animal spirits’ in the business sector. Sometimes markets fail or are inefficient, and at present low interest rates and strong balance sheets are not tempting businesses to spend with more gusto.