The slowdown of the mining and resource investment boom seems to be happening faster than previously thought.
On Wednesday construction work done in the March quarter showed a 2.0% fall, which surprised the market. Now actual and planned investment data for the March quarter and for the next year and bit revealed a sharp 4.7% fall, when a small rise had been forecast by economists.
In fact it now appears that the debate over whether the boom would peak in 2013, 2014 or 2015 is over – it did so last year.
Capital expenditure in mining (the key industry) plunged by $1.47 billion or 6.2% in the March quarter, after seasonal adjustment.
The ABS revised down its estimate of capex in the previous six months by $872 million or 1.8%. Netting out other changes in the quarter in investment and it looks as though around $1.5 billion in investment vanished in the quarter.
And, the value of construction work done fell by $1 billion in the quarter. So next week’s March quarter GDP figures are going to be under considerable pressure to stay in the black – more than anyone thought a week ago.
WA felt the full brunt of the slide (which was to be expected) which helps explain the plethora of revenue and earnings downgrades from the services sector in May.
But there was a glimmer of hope yesterday for the economy – data on building approvals for April (one of the most volatile of all the monthly stats releases) showed a rise, with private house approvals up, along with other dwelling approvals (units, townhouses) which showed another of those big, volatile rises.
The news from the Australian Bureau of Statistics, especially the private investment data (http://www.abs.gov.au/ausstats/abs@.nsf/mf/5625.0?OpenDocument) adds to the pressure on the Reserve Bank to cut rates again after its surprise 0.25% trim at this month’s meeting.
The RBA board meets next Tuesday and the poor investment figures have increased calls for the central bank to again cut rates.
The ABS data shows that actual investment fell 4.7% in the three months to March, thanks to a 5.5% fall in building and structures and a 3.3% drop in the amount invested in new plant and machinery. seeing economists had been looking for a rise of 0.5%, the news surprised many in the markets.
That was after a surprise 1.2% fall in total investment reported for the December quarter, which was revised up to a 2.1% drop in yesterday’s release.
That means the slide is greater than first thought. The news saw the dollar slide back under 96 US cents (it had rebounded above that level overnight) because the expectation now is for another rate cut sooner than later. It later bounced back over 96 US cents, despite the big fall on the Tokyo stock market.
AUDUSD – Sell In May
When taken with the 2.0% drop in construction work done in the March quarter (the market had been looking for a 2.0% rise), the poor investment data has lifted the odds of first quarter economic growth being weaker than expected when the national accounts for the March quarter are released next Wednesday.
Retail trade will make a positive contribution, while a surge in exports in the quarter and a sharp fall in imports of plant, and machinery (as we saw with the investment data) produced the first trade surplus for the quarter for more than a year.
Net exports could make a significant contribution to growth in the accounts though.
And the ABS figures show that expected investment in the year to June 30 is now falling. The 6th estimate of $163.018 billion is 2.0% lower than the 5th estimate, released three months ago.
And the second estimate of investment in 2013-14 of $156.467 billion is nearly 10% down on the second estimate for 2012-13, but 3.4% higher than the first estimate for the new financial year.
That however will change because the amount expected to be invested usually falls slowly as the financial year goes on.
However some economists say there could also be signs that the slide might plateau out over the rest of the year with planned spending remaining above $150 billion for the next year – which would have been a record a couple of years ago.
One of those is HSBC’s chief economist for Australia, Paul Bloxham (who used to work for the RBA). He said in a note late yesterday that the investment data points to a plateauing in investment than a sharp fall.
”The mining story is still actually supportive of growth important. That’s important because … that means there is more time for the rest of the economy to start to pick up and takeover in terms of being the key drivers of the economy," he wrote.
Mr Bloxham said the rise in building approvals was consistent with a pick-up in the non-mining sectors of the economy. Together with improved retails sales in the first quarter, they were also reflective of the impact of lower interest rates on the economy, he said.
"There are signs that growth is re-balancing. It’s happening perhaps a bit more slowly than some have expected, but there are signs that it is happening," Mr Bloxham said. He also pointed out that the recent fall in the value of the Australian dollar would go some way in allowing the Reserve Bank to keep the cash rate at 2.75% when its board meets next week.
Housing approvals showed a glimmer of light – the seasonally adjusted increase for total dwelling approvals was an unrealistic 9.1% (skewed upwards by an 18.0% jump in approvals for non house dwellings, more than revising the 9.9% fall in March).
Private house approvals rose 2.5% and the ABS said that on a trend basis (which attempts to smooth out the swings in the seasonally adjusted figures), private house approvals rose 1.0% and have now risen for the past four months, which is what the RBA has been looking for as the economy moves from investment-led growth to where it comes from housing and other non-resource investment and spending.
