Much to the surprise of everyone, business investment was stronger in the September quarter, rising rather than falling.
The seasonally adjusted increase from the Australian Bureau of Statistics was just 0.2%, but that was far better than the fall of 1.9% forecast by the market, and after the 2.2% drop in the value of construction work in the quarter which was reported on Wednesday.
In fact investment has now risen for three successive quarters – when it was widely expected to drop as the mining boom fell away – which indeed is happening.
And the June quarter rise of 1.1% was revised up to a much stronger increase of 1.6%, which was unexpected.
But investment from the rest of the economy is showing life, help by the boost from the residential construction surge.
Spending on plants and machinery increased by 2.6% ($318 million), offsetting a 1.2% (or $303 million) drop in spending on buildings and structures.
And importantly, the ABS’s new estimate of spending in the current 2014-15 financial year was better than expected.
It is now $153.2 billion, down 7.5% from a year ago, but it’s also 2.2% up the previous (third) estimate. Revisions have now gone upward for three straight quarters.
As well, investment intensions were down 9.2% in the previous data release, now they are down 7.5%.
"Other selected industries" accounted for the upward revisions, suggesting signs of life for investment in the non-mining sector.
It’s further confirmation that the transition the economy is making from the resources investment boom to domestic growth is holding up.
NAB survey points to improving capex
Source: ABS, NAB, AMP Capital
The AMP’s chief economist, Dr Shane Oliver says “It’s not enough to justify raising interest rates, but for now at least it adds to confidence that the RBA is right to keep interest rates on hold rather than cut them.”
“Investment in buildings and structures fell 1.9% (consistent with construction data already released), but plant & equipment investment rose 4.4%. The latter provides a slight positive for September quarter GDP growth to be reported next week. Our expectation is for GDP growth around 0.7% quarter on quarter.
"Futhermore, while mining investment is expected to fall 16% and manufacturing investment is expected to fall 13%, investment in other industries is expected to rise 9%. Investment in other industries is also now up for three quarters in a row.
“Although the turnaround in investment in other industries is from a low base, its a positive sign that the rebalancing in the economy from mining investment to activity in the non-mining economy is on track,” Dr Oliver wrote yesterday afternoon.
And there was further encouraging news in the latest figures in new home sales, which are at a four month high.
The Housing Industry Association (HIA) said its survey of large volume builders showed sales of new homes rose 3% in October, after being flat the previous month.
“Sales are still off their cyclical peak reached back in April this year, but the overall volume of new home sales is still at an elevated level,” HIA chief economist Harley Dale said in a statement.
“That augurs well for healthy new home construction activity persisting into 2015,” he added.
