Mining was the engine room of the Australian economy from around 2004 to 2008 as we rode the China boom to its peak, and then down again in the second half of last year after the credit crunch and global recession hit.
Now it’s gathering itself for a return to strong growth in the second half of the current financial year and there are even signs of renewed activity in manufacturing.
Projects like the $42 billion Gorgon gas project, other gas projects in WA and Queensland and talk of new coal and iron ore spending, will add to the feeling that the boom is returning.
New private capital spending figures from the Australian Bureau of Statistics yesterday.
Coming on top of solid sales in retailing, news of the big Gorgon gas project being given the green light, growing confidence among consumers and business, and the gathering home building boom, plus rising home sales and prices, the Australian economy is rapidly moving towards a solid rebound in 2010.
The stronger than expected capex figures and better construction figures yesterday, indicate the underlying strength of two major sectors of the economy have remained strong during the economic slowdown and global recession.
It suggests that the chances of unemployment rising past 7%-7.5% are fading rapidly, and that we could see a rate rise from the Reserve Bank sooner than we expect if these figures are repeated in coming quarters.
The RBA board meets on Tuesday and if it is going to send a message about the need for a possible change in monetary policy, then it will be in the post meeting statement that we have to look to find it.
The investment figures though and the construction numbers do point to an underlying strength that many commentators thought wasn’t there.
The ABS said new private capital expenditure rose 3.3%, seasonally adjusted and in real terms, in the June quarter, sharply better than the gloomy expectation for a 5% fall from market economists.
But it was up nearly 17% over the year to June.
Wednesday’s figures from the ABS for construction spending showed a flat result for the June quarter (down just 0.1%) when the market had been tipping a 4% fall.
Both figures add to the feeling that economic growth for the second quarter (to be confirmed next Wednesday) will be better than expected, and that there could be a small upgrade to the March figure.
Skilled jobs vacancy figures, also out Wednesday, showed their first rise in 21 months, hinting that the employment outlook – supposedly a lagging indicator – is also on the improve.
The recruitment of thousands of employees for Woodside’s Pluto LNG project and soon the early work on Gorgon (upwards of 12,000 between the two) will require a lot of skilled labour.
The ABS said new capital spending topped $100 billion for the first time ever in the year to June 30, with a 16.9% rise to $101.134 billion.
While impressive, earlier projections had the figure running closer to $120 billion, but the credit crunch and recession forced a lot of projects to be slowed, or abandoned.
The Bureau said that the third estimate for 2010 financial year was $90.557 billion, 10.4% lower than the third estimate for the 2009 year.
A couple of years ago a figure around that level for the full year would have been regarded as a boom.
There are signs the stimulus spending has had a benefit, especially with the tax-driven incentives for small and medium business (it’s not all cars and computers). As well the spending on schools and then infrastructure seems to be sparking a recovery of sorts in manufacturing.
But the most interesting comments were in the projections made by the ABS.
It said that expectations for total capital spending for 2009-10, reported in the June quarter, "strengthened in current price terms relative to the same expectations reported in earlier periods. The actual trend series was slightly weaker in the June quarter 2009.
"The projection for the total capital expenditure series is for a return to growth to the end of the financial year 2009-10.
"The actual trend for buildings and structures was essentially flat in the June quarter 2009, slightly above the projected trend.
"The projections for buildings and structures indicate a dip in expenditure in the September quarter, before a rise in the series to the end of the 2009-10 financial year.
"Expenditure expectations for 2009-10 rose strongly in the June quarter, with the increase being concentrated in Mining.
"Projections of expenditure for equipment, plant and machinery indicate near term growth before a decline in the June half 2010.
“The actual trend in the June 2009 quarter tracked slightly below the series projection.
"The Mining industry has delivered weakness in capital expenditure relative to the strong growth in the series since the start of 2005.
“The modelled projections imply that this series will hover around the $9 billion per quarter level through the next quarter but resume a strong growth trajectory as the 2009-10 financial year progresses.
"The Manufacturing actual trend series was flat in the June quarter 2009. The model is projecting imminent weakness in the series before some recovery in expenditure from mid 2009-10.
“Expectations data collected in the June quarter survey for 2009-10 increased substantially compared to the expectations for 2009-10 collected in the March quarter survey.
"The projected trend for the Other selected indus
