Biggest lift in planned investment in a decade

Business investment

• The Australian Bureau of Statistics (ABS) said new business investment (spending on buildings and equipment) rose by 1.1 per cent in the December quarter to be up 9.8 per cent on the year.
• The cost of investment goods rose 1.7 per cent in the quarter – the biggest rise in 12 years.
• The fifth estimate of expected investment in 2021/22 is 15.9 per cent higher than the equivalent estimate for 2020/21. And the first estimate of expected investment in 2022/23 is 10.8 per cent higher than the equivalent estimate for 2021/22 – the strongest result in a decade.

What does it all mean?

• Covid-19 continues to make it difficult to get a clean reading on the latest economic data. One month or quarter’s figures can be affected by enforced or self-imposed lockdowns, and then the next month or quarter’s figures can see a bounce back with re-openings or return to work.
• A case in point – investment rose by 1.1 per cent in the December quarter after falling 1.1 per cent in the September quarter. ‘Lockdown’ states and territories like NSW and the ACT lifted investment in the quarter after trimming spending a quarter earlier.
• The good news is that Aussie businesses remain in good shape and are focussed on investing in, and growing, their businesses over the coming few years. While companies are focussed on tight labour markets, supply-chain issues and rising costs, the general view – at least from listed companies – is that the pressures are manageable, especially with revenues posting solid growth. But costs (expenses) will be featuring more prominently on business horizons.
• Aussie companies are indicating a preference to plough more money back into their business than paying out dividends – wanting to take advantage of opportunities in a ‘living with Covid’ world.
• The first estimate for spending in the 2022/23 financial years is almost 11 per cent higher than the estimate made a year ago for the current financial years. Businesses are poised to spend, supporting economic activity. And the expected lift in investment doesn’t include the lift in Government infrastructure spending also over the next few years.

What do you need to know?

Private Capital Expenditure – December quarter

• Overall: New business investment (spending on buildings and equipment, ‘capex’) rose by 1.1 per cent in the December quarter to be up 9.8 per cent on the year.
• Spending on buildings and structures rose by 2.2 per cent to be up 11.2 per cent on a year ago.
• Spending on equipment, plant and machinery fell by 0.1 per cent but is still up by 8.4 per cent on a year ago.
• Sectors: Mining investment rose by 2.6 per cent in the December quarter to be up 10.2 per cent on a year ago. Manufacturing investment was up by 3 per cent in the quarter and up by 7.8 per cent on the year. Other industries spending was up by 0.2 per cent in the quarter and up by 9.9 per cent on a year ago.
• Industries: In seasonally adjusted terms investment rose in 10 of the 17 industries in the December quarter. Capex rose the most in Education and Training (up 18.6 per cent); Accommodation and Food Services (up 17.5 per cent); and Administrative and Support Services (up 14.4 per cent).
• But spending fell most in Wholesale Trade (down 10.3 per cent); Other Services (down 8.9 per cent); and Electricity, Gas, Water and Waste (down 5.7 per cent).
• States: In seasonally adjusted terms investment rose in four states and territories during the December quarter: NSW (+5.6 per cent); Victoria (+0.9 per cent); Queensland (+2.7 per cent); South Australia (-1.8 per cent); Western Australia (-4.4 per cent); Tasmania (-9.8 per cent); Northern Territory (-1.6 per cent) and ACT (+12.0 per cent).
• Prices: The overall deflator for investment goods rose by 1.7 per cent in the December quarter – the biggest rise in 12 years. The cost of buildings and structures rose by 1.7 per cent in the quarter (equal biggest rise in 13 years) while the cost of equipment rose by 1.6 per cent (biggest rise in six years).
• Over the year, the cost of investment goods rose by 3.9 per cent, the biggest rise in 12½ years. The cost of buildings rose by 5.1 per cent (biggest rise in 13 years). And the cost of equipment investment rose by 2.5 per cent.
• Expected business investment: The fifth estimate of expected investment in 2021/22 is 15.9 per cent higher than the equivalent estimate for 2020/21. And the first estimate of expected investment in 2022/23 is 10.8 per cent higher than the equivalent estimate for 2021/22 – the strongest result in a decade.