Business investment
- Business investment: New business investment (spending on buildings and equipment) fell by 5.9 per cent in the June quarter to be down by 11.5 per cent over the year. Economists had tipped an 8.2 per cent fall in the quarter. In 2019/20, real investment totalled $111.4 billion, down by 6.5 per cent on the year.
- Expected business investment: The third estimate for investment in 2020/21 was up 8.9 per cent on the second estimate. But the third estimate was 12.6 per cent down on the equivalent estimate made for 2019/20.
- Business survey: The Australian Bureau of Statistics (ABS) have released the Business Impacts of COVID-19 survey. According to the survey, “Fewer businesses reported a decrease in revenue in August (41 per cent), compared to July (47 per cent). The proportion of businesses that expect revenue to decrease in September (28 per cent) was lower compared to the proportion that reported a decrease in August (41 per cent).”
The investment data is important for companies in mining services, construction, transport and other industrial sectors.
What does it all mean?
- The survey of business investment was conducted over late July/August. The Business Impacts of COVID-19 survey was conducted August 12-19. So the data is very timely and therefore very useful.
- Victoria may be going through a painful second-wave experience but business conditions continue to improve. And yet more data has positively surprised analysts. Economists thought investment would have been down over 8 per cent in the quarter – it was down closer to 6 per cent – still a hefty fall, but not as bad as feared. Yesterday, data showed a 0.7 per cent fall in construction over the June quarter. Forecasts had suggested a fall of 7 per cent.
- Understandably businesses have been cutting everyday spending and non-essential big-ticket purchases. That works in the short-term, but over coming months businesses will need to be more strategic. Certainly cash levels are high. CommSec estimates that end-June cash levels at ASX 200 companies were up 29 per cent to a record $131 billion. And the asset write-off scheme from the Federal Government also provides an attractive incentive to invest.
- Encouragingly, new survey data showed that more businesses lifted investment or maintained similar spending over the past three months, outpacing those that cut spending.
What do the figures show?
Private Capital Expenditure – June quarter
- Overall: New business investment (spending on buildings and equipment) fell by 5.9 per cent in the June quarter – the sixth straight decline. Spending is down 11.5 per cent on the year.
- Spending on buildings fell by 4.1 per cent after falling by 1.1 per cent in the March quarter.
- Spending on equipment fell by 7.6 per cent after rising by 2.3 per cent in the March quarter.
- Building investment is down by 9.4 per cent over the year and equipment is down by 13.8 per cent.
- Sectors: Mining investment fell by 1.2 per cent in the June quarter; manufacturing spending fell by 4.5 per cent; while spending by “other selected industries” fell by 8.4 per cent.
- States: In seasonally adjusted terms investment fell in six of the eight states and territories in the June quarter: NSW (down by 8.9 per cent); Victoria (down by 6.3 per cent); Queensland (down by 9.5 per cent); South Australia (up by 4.8 per cent); Western Australia (down by 0.6 per cent); Tasmania (down by 17.1 per cent); Northern Territory (down by 23.2 per cent); ACT (up by 23.4 per cent).
- Prices: The overall deflator for investment goods rose by 0.4 per cent in the June quarter after a 0.5 per cent lift in the March quarter. The cost of buildings and structures rose by 0.2 per cent in the quarter while the cost of equipment rose by 0.6 per cent.
- Over the year, the cost of investment goods rose by 2.1 per cent, down from the 2.4 per cent annual gain in the March quarter. The cost of buildings rose by 0.7 per cent. And the cost of investment equipment rose by 3.6 per cent.
- In 2019/20, real business investment totalled $111.4 billion, down by 6.5 per cent on the year. In nominal terms, investment fell 4.3 per cent.
- Expected business investment: The third estimate for investment in 2020/21 was up 8.9 per cent on the second estimate. But the third estimate was 12.6 per cent down on the equivalent estimate made for 2019/20.
Business Indicators, Business Impacts of COVID-19, August 2020
- The survey of 2,000 businesses (60 per cent response rate) was conducted between August 12 and August 19.
- On revenue: “Fewer businesses reported a decrease in revenue in August (41 per cent), compared to July (47 per cent). The proportion of businesses that expect revenue to decrease in September (28 per cent) was lower compared to the proportion that reported a decrease in August (41 per cent).”
- Financial commitments: “More than a third of businesses (35 per cent) reported they expect it to be difficult or very difficult to meet financial commitments over the next three months. Small and medium sized businesses were almost twice as likely as large businesses to report they expect it to be difficult or very difficult to meet financial commitments over the next three months (35 per cent and 33 per cent compared to 18 per cent). Businesses currently operating under modified conditions (39 per cent) were more than twice as likely to report they expect it to be difficult or very difficult to meet financial commitments over the next three months, compared to those operating as normal (16 per cent).”
- Business capital expenditure: “Businesses reported how actual or planned capital expenditure had changed compared with three months ago.
- 23 per cent reported they had decreased or cancelled their actual or planned capital expenditure
- 25 per cent reported that expenditure stayed the same
- 12 per cent reported that expenditure had increased
- Over a third (37 per cent) had no actual or planned expenditure on capital.
- More than three quarters (76 per cent) of all businesses reported at least one factor had significantly influenced their expenditure on capital, including future economic uncertainty (59 per cent) and future expected demand (40 per cent).
- Small and medium sized businesses were more likely to report that changes to the instant asset-write off and other government support measures influenced business expenditure on capital compared to large businesses.
- Almost two in five large businesses (39 per cent) reported that business modifications made in response to COVID-19 had influenced expenditure on capital, compared with 28 per cent of small businesses and 31 per cent of medium sized businesses.”
- Business capital expenditure intentions: “More than a quarter (28 per cent) of all businesses reported capital expenditure intentions over the next three months. By employment size, the proportion of businesses that reported capital expenditure intentions were:
- 27 per cent of small businesses
- 35 per cent of medium sized businesses
- 55 per cent of large businesses
- Across all asset types, large businesses were more likely to report capital expenditure intentions over the next three months compared to small and medium sized businesses.”
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 is conducting regular surveys like Business Impacts of COVID-19 to show the impact of COVID-19 on the economy. The data is important in gauging the impact on individual businesses and business sectors.
What are the implications for investors?
- What Corporate Australia does over the next few months will be important for the post-COVID period. Businesses must make strategic decisions on spending so they can hit the ground running at a faster pace than their competitors.
- Governments are spending money on infrastructure, and that creates opportunities for private business. But those businesses must be in shape to take on the new work. The best way to get out of a crisis is to grow your way out.
- Other countries are similarly looking to spend on infrastructure to drive economic recovery. Those recoveries will be importing in framing the outlook for Aussie miners.