Investment slides: New business spending on buildings and equipment fell by 9.2 per cent in the September quarter – the largest quarterly fall on record and the fifth consecutive quarterly decline.
Expected business investment in 2015/16: The fourth estimate for 2015/16 is $120.35 billion, up 4.8 per cent on the third estimate (June quarter) but down 20.9 per cent over the year. It was the biggest lift in September quarter investment expectations (four estimate) in four years.
Sectors: Mining investment fell by 10.4 per cent in the September quarter (fifth straight decline), while manufacturing spending rose by 6.9 per cent but spending by “other selected industries” fell by 10 per cent.
What does it all mean?
There wasn’t a lot of good news in the business investment report. Spending recorded the biggest quarterly fall on record, expectations of future investment are down over 20 per cent compared with a year ago and the weakness was across all the states and territories bar Tasmania.
The main good news or rather glimmers of hope was the lift in expected investment plans compared with last quarter. The fourth estimate for 2015/16 is $120.35 billion, up 4.8 per cent on the third estimate (June quarter) – marking the best fourth estimate increase in four years. It may just be a sign of a shift in moment by the business sector but it is too early to tell. Certainly the lift in business conditions in recent months may be supportive of a lift in investment plans. But as we have seen in the past business may plan for future investment but then mothball projects if the economic landscape doesn’t improve.
Interestingly the baton pass seems to be taking place. Investment outside the mining sector may have eased in the September quarter but it was from record highs. In addition investment in the manufacturing sector lifted by almost 7 per cent – helping to partially offset the fall in spending by the mining sector. No doubt the rebalancing across the economy is being supported by the slide in the Australian dollar over the past year – a outcome that should garner further traction in coming quarters.
Business spending looks like continuing to be a weight on Australia’s economic growth performance. And while the Reserve Bank won’t panic, the latest data keeps an easing bias in place for monetary policy. The Reserve Bank could cut rates again, but it is far from certain that this would have a measurable impact in further lifting business spending
What do the figures show?
Private business investment
Overall: Business investment (spending on buildings and equipment) fell by 9.2 per cent in the September quarter after falling by 4.4 per cent in the June quarter. Spending on buildings fell by 9.8 per cent in the quarter while spending on equipment fell by 8.2 per cent. Investment is down 20 per cent over the year with buildings down by 23.6 per cent while equipment is down by 12.7 per cent.
Sectors: Mining investment fell by 10.4 per cent in the September quarter (fifth straight decline), while manufacturing spending rose by 6.9 per cent but spending by “other selected industries” fell by 10 per cent.
States: In seasonally adjusted terms investment fell in seven of the eight states and territories in the September quarter. The only rise was in Tasmania (up 1.3 per cent) Investment fell most in Queensland (down 15.2 per cent), followed by NSW (down 14.3 per cent), Western Australia (down 6.1 per cent), South Australia (down 5.3 per cent), the ACT (down 4.7 per cent), Victoria (down 2.3 per cent) and the Northern Territory (down 0.3 per cent).
Prices: The overall deflator for investment goods was up 0.9 per cent in the September quarter after a 0.8 per cent rise in the June. The cost of buildings and structures rose by 0.3 per cent while the cost of equipment rose by 2.0 per cent. Over the year, the cost of investment goods rose by 2.8 per cent – the highest in 18 months. The cost of buildings rose by 0.6 per cent while the cost of investment equipment rose by 6.8 per cent.
Forecasts: The fourth estimate for investment in 2015/16 is $120.35 billion, down 20.9 per cent on the fourth estimate for investment made for the previous (2014/15) financial year. But the investment expectation is up 4.8 percent on the third estimate made for the current 2015/16 financial year.
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.
What are the implications for interest rates and investors?
The Reserve Bank will retain its easing bias – bias to cut rates. Much depends on how households respond to retail over Christmas and early in the New Year. The hope would be that the lift in business conditions in recent months translates through to confidence and investment plans over the coming year.
CommSec expects the Reserve Bank to keep rates on hold over the next few months.
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