The national accounts for the March quarter, due on Wednesday, would normally excite plenty of interest, but they’re of only historical interest at this point. There’s a lot of speculation around whether growth will be flat or negative and, if the latter — which most economists expect — negative by how much. But it’s still data from a mostly pre-COVID-19 world.
Of greater importance was last week’s data from the Australian Bureau of Statistics (ABS) on private investment, which showed a 1.6% fall in actual expenditure in the March quarter (to be down a nasty 6.1% for the year to March) and an even sharper fall of 8.8% in the second estimate for expenditure in the coming 2020-21 year.
The expected expenditure shows businesses plan investment of just $90.89 billion for the year, with falls across the board — mining down 6.8%, manufacturing down 7% and falls in buildings (11.6%) and structures and plant and machinery (4.5%).
The expenditure survey doesn’t capture all private investment — it misses a lot of spending by small to medium businesses and in areas such as health and education. The size of the forecast falls could be even larger given the nervousness of small to medium businesses, especially about the future of the JobKeeper scheme.
The expenditure data is especially grim given other data last week showed the value of construction work done falling 1% in the March quarter, following a bigger fall in December. That was a little better than forecast, but probably as good as it will be for the next year or more given the expenditure data.
Reserve Bank governor Philip Lowe flagged this as an issue of concern when he appeared before the Senate’s COVID-19 committee last week:
What we’re also seeing is a decline in employment in some industries that kept jobs going for the first couple of months because the firms had a backlog of work. Many businesses, particularly in construction and professional services, had a pipeline of work, so when the shutdown occurred that work could be done. But what we’re hearing through our liaison is that that pipeline is being worked off. As that pipeline gets worked off, if it is not replaced by new jobs and new contracts, we could see weakness in construction and professional services.
That’s why the government is, sensibly, preparing a construction industry stimulus package, to prop up one of our biggest employers.
Infrastructure spending being brought forward will help the civil engineering end of the industry, but residential construction is facing a sharp downturn. Home buyer grants and even home renovator grants are being trailed in the media, though the Masters Builders Association, the CFMEU and welfare groups have all called for a focus on social housing.
Apart from its social benefits, social housing also has less of a risk of merely bringing forward private expenditure that would have occurred anyway, or trying to stimulate spending by householders too worried about their job prospects to risk building a house or undertaking a major project.
The government has some time to get it right, but whatever it spends, it will need to be substantial to restore a pipeline that was petering out even before the pandemic arrived.
I’m totally underwhelmed and unconvinced by this piece. It may be all true, but any government ‘stimulus package’ necessarily implies some sort of subsidy or incentive, be it a government outlay, a tax receipt forgone, an environmental protection or a planning decision corrupted.
But its not just the ‘measured economic output’ that is important. Its also where the incidence of the subsidy or benefit falls. Will it be mostly captured by profits of construction companies and their shareholders (see Morrison jumping for joy) or the men employed in the construction industry (see the CFMEW unions jumping for joy)?
Additionally, while stimulus to the construction and ‘infrastructure’ industries might stimulate the measured market economy, it’s also not necessarily the best way to stimulate the economy from either a narrow mercantile/economic perspective (and the values therein) or a social perspective.
As has been reported in Crikey the COVID crisis has disproportionately affected female dominated employment sectors. And yet the stimulus is to be focussed on the male dominated construction industry? Hardly reasonable. I know you guys don’t have misogynist blinkers, but really?
I would think that there are now a lot of inner city office property owners concerned about the value of their investments. Ditto for private owners of toll roads and mass transport infrastructure. …We don’t need more encouraged by a government stimulus.
Why not focus the stimulus where there is a need. Why not expand hospital capacity including the necessary trained workers, so if, or when, the (or a) pandemic comes we won’t have to lock down the country to ‘flatten the curve’?
Why not focus on stimulating the education sector; not just occupational skill, but real education, through say, abolishing HECS and providing a living allowance to students? Or one could increase maternity and paternity leave.
Why not focus on stimulating the development and production of fuels from renewable energy for the transport sector like ammonia and other hydrogen fuel forms, before China or Europe stitch this up?
There are heaps of worthwhile areas that a stimulus would generate a boost to measured economic output. It would be very poor policy indeed to either assess a proposal without comparison to other options, or to only judge such a proposal on the biased, inadequate, narrow, measured economic output criterium.
Many areas you cite would probably not be considered stimulus, but an on-going cost.
For example, expanding hospital capacity would require a short term investment in construction (stimulus) but increased extra nurse, doctors and (probably) administration staff would be an on-going expense.
That is not to say that your ideas don’t have merit, just that they would not be considered stimulus and unlikely to occur in Australia where such things are considered an expense, rather than investment.
I agree with you Wayne, but it’s wrong. Firstly governments don’t account for ‘assets’ nor, in reality, to liabilities. If they did, then every dollar of iron ore, coal, every forest cleared, every dam built would result in reduced assets of the nation. It doesn’t. Ditto, expenditure on some infrastructure ought to deliver benefits into the future and therefore have value which ought to gradually diminish over time. This is not counted either. When you educate the population, that also produces benefits into the future, and that too is not counted. Despite the rhetoric, accrual accounting for government was/is a failure. In reality government finances are all annual expenditures. To give you an actual example I was once able to question a government minister at a committee meeting about their policy to sell public land at 50% of its market value. This government (Labor) crowed that this not only ‘stimulated’ building, it also perversely generated increased government revenue. …Why? Because they never counted the financial loss of the asset. I offered that minister $50 then and there for his house, arguing that would be $50 he wouldn’t have if he didn’t sell to me. He said the situation for the government was different. Go figure!
Secondly, the argument you put (I acknowledge its not your argument) is also wrong because the stimulus is about jobs. …mens’ jobs in construction. It would be ok, according to the authors of this article, for a stimulus to pay company A to dig a big hole; and then pay company B to fill it in.
Thirdly, what you say is wrong, because paying to train nurses, doctors, contact tracers etc etc even over the short term, produces an asset (human capital in the vernacular of depersonalising economics) that has value into the future.
Fourthly, it is also stimulus because these people (student nurses & doctors) will spend money on the market economy, just like it is intended the men in the construction industry will do.
I haven’t the skills nor data to do any modeling so I don’t know where the numbers fall. But even accepting that alternative stimulus of other sectors might not produce the same kick to the narrow biased measured economic output model, they, in my view, give a far greater economic (in the true sense of that word) boost to our community.
The problem is that GDP economic output was a great focus during the post WW2 reconstruction period. But it has outlived its usefullness, so much so we now have it in itself being the sole policy object of political parties, ie. ‘growth’.
Sorry for the tome response. I did appreciate your comment.
My understanding of the term stimulus in economic terms is that it is a short term injection of funds for short term benefits.
The things you suggest would be more effective are longer term items that should provide improved economic outcomes over the longer term.
Which is why it should be done as a long term project, rather than a short term effort to boost the economy.
I’d also suggest that construction funding, if directed well, results in the creation of assets which can benefit the economy long term. Supporting renovations of privately owned houses is silly, but constructing public owned social housing is not.
A commenter on the Independent Australia news site put this case quite succintly when she wrote:
” Australia is going to have to build many bridges very quickly if we are to fit our rapidly growing homeless populations under them.”
(Thank you, Desert Woman)
Small projects en masse create more continuing employment than large one-off endeavours.
The building of thousands of desperately needed social and low rent housing would fill this requirement with a minimum of delay, as opposed to grants to indiduals by way of ‘First home owners’ schemes and the like which historically have contributed to raising the cost of building as well as the prices of existing housing stock.
Given that CBDs will soon – hopefully permanently – be empty concrete canyons and the glass phalli unleasable at any price in double figures, for whom would major construction stimulus be of benefit? (Rhetorical question – the usual suspects.)
It’s hilarious that Nannyphobic Keane should suggest such a thing
As noted above such edifice complexes are the last thing we need I would go further and suggest that we do not need more low cost home construction (which would be a fig leaf for the major corporate cronies) because that presupposes they will be in the already toxically overcrowded & unsustainable (esp post C19) megapoli.
There is abundant cheap and life enhancing housing beyond the concrete.
The old argument against decentralisation – that’s where the jobs are – is no longer true.
Alas, for the moment, it’s where the votes are – guess which is of greater importance to the denizens of the Hole-in-the-Hill?
Maybe some of the empty office blocks could be converted to social housing.
Fine views of the Harbour in Sydney from some of those towers of hubris.
They’d make excellent urban farms for high value horticulture or multistorey jungle gardens.
Anything & everything except paper shuffling for peanuts.
‘Home buyer grants’ were predictable, but ‘home renovator grants’ only make sense when you recognise that this is a government whose priority is to make the rich richer, and the poor poorer. As demonstrated by their temporary largesse with Covid payments, so that ‘naice’ people, like their own children and grandchildren, would not have to experience the full-time brutality they serve out to the poor and vulnerable.
Predictable also is welfare group and CFMEU support for social housing. That the Master Builders Association is also pushing that barrow is much more telling. Clearly, they know that the puff has gone out of the private market. Pity all three groups are up against a government that would rather drink poison than help the poor and vulnerable.
Couldn’t agree more Norm. Social housing is the only stimulation solution that makes sense. Construction companies, tradies, white goods suppliers, almost every section of our working society would benefit. Low rents and the ability to live with dignity regardless of income would go a long way to solve the inequality crisis. It’s never been more affordable and coupled with a return on investment (for the govt), it’s a win win all around. Funny I hear never the libs (not surprising) nor labor (also not surprising these days) ever promoting it.
@Norm ..Yes ,the home renovators grant is indeed a real ‘naice’ touch for real ‘naice’ people …anything to keep the Govt subsidised ponzi house bubble rising….The permanently entrenched renter underclass will hopefully be grateful of the largesse to their rentiers’ .