The early reaction to the June quarter and 2015-16 investment figures from the Australian Bureau of Statistics yesterday was, unsurprisingly, all about how bad they were: investment was down a seasonally adjusted 5.4% in the June quarter (after March’s 5.2% fall was revised to a 5.4% fall), and a total of more than 17% over the 12 months to June 30. There was a lot of chat about how this was worse than forecast and how the numbers would drag down second quarter GDP growth in next Wednesday’s national accounts.
Then there were the planned investment figures, which are quarterly estimates of planned investment for the whole year: planned investment for the current 2016-17 financial year (in today’s third estimate from the ABS) was 9.1% below the third estimate for the 2015-16 financial year, though up 27% from the first estimate at the start of the year and up 15% from the second estimate in May.
And there are now clear signs of a rebound in investment occurring outside mining. Estimate 3 for manufacturing is $8.471 billion, 6.8% higher than the same estimate for last financial year, and 16.5% higher than Estimate 2 for this year. Equipment, plant and machinery is 16.8% higher and buildings and structures is 15.9% higher than Estimate 2. And Estimate 3 for other selected industries for 2016-17 is $54.997 billion, 4.2% higher than Estimate 3 for 2015-16 and 15.5% higher than Estimate 2.
The ABS also pointed out that while spending on building and structures will be down in 2016-17 compared to the year to June, the main contributor to the decrease was mining, which fell a whopping 25.8%, but which actually lifted between Estimate 2 and Estimate 3. So the mining investment boom is still ending, but there is still mining investment happening and will play an increasingly important part in the coming financial year as global commodity prices continue their tentative recovery.
So it’s a poor report looking backward, but there are some signs of improvement in the coming year, and manufacturing in particular looks set to grow. But a note of caution about the entire report: the Reserve Bank is quite sceptical about the degree of importance placed on the data by the media and the markets. Buried in the minutes of the June RBA board meeting was a sign of a lengthy discussion about investment and the accuracy of the ABS data.
“Investment intentions from the latest ABS capital expenditure survey continued to imply a further sharp fall in mining investment and a decline in non-mining investment in 2016/17. Members noted that this survey captures less than half of the activity included in the more comprehensive national accounts measure of non-mining business investment. In particular, the ABS capital expenditure survey excludes some industries, such as health and education, and investment in intangible assets such as software, which had become an increasingly important component of investment.”
It was the strongest commentary to date from the RBA whose senior members have made similar, but much truncated observations about the ABS data in recent times. The ABS appeared to respond to the RBA comments yesterday with a “feature article” on what is and isn’t in the capex data and how the gaps could possibly be remedied. But reading it confirms that the significant limitations of what’s know in the finance industry as “crapex” should be borne in mind when reading commentary about it.
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