The latest investment figures from the Bureau of Statistics reveal something you will have to look hard to see reported in the papers this morning – investment in this country isn’t dying – it is alive and well and doing much better than most reports suggest.
Yes, its still falling, but that is because of the impact of the dying mining boom.
But predictably the early reaction to the June quarter and 2015-16 investment figures from the Bureau of Statistics was all about how bad they were – down a seasonally adjusted 5.4% in the June quarter (after March’s 5.2% fall was revised to a 5.4% fall), and more than 17% over the 12 months to June 30.
There was talk about how this was worse than forecast and how they would drag down second quarter GDP growth in next Wednesday’s national accounts. The last estimate for 2015-16 private investment was $127.4 billion, down 15.4% from 2014-15’s level.
It could very well do that, along with the week value of construction work done figures from last week (but not the string residential construction data in the same ABS report)
And the planned investment for the current 2016-17 financial year (in yesterday’s third estimate from the ABS ) was seen as weak, with commentators pointing out how the $105.1 billion figure was 9.1% under the third estimate for the 2015-16 financial year.
But it is more than that, there are now clear signs of a rebound in investment occurring outside mining.
But much of what was in the June quarter ABS figures was all history about what has been spent, not was is planned. In fact the planned investment figures for the current year show is a sharp rise from the first estimate in the December quarter capex report of $82.5 billion.
The latest figure is up 27% from December – still below the same estimate a year ago, but investment is not the disaster area many economists still think it is. . And the third estimate was up more than 15% from the second estimate.
And the ABS figures (ignored in the early media reports) missed where this growth is coming from – a bit of mining (surprisingly), some from manufacturing (the slow recovery there has been evidence now for 9 months) and a solid rebound in planned spending in the other industries category. And manufacturing is shaping up to top the depressed figure for 2015-16!
The ABS said Estimate 3 for Manufacturing for 2016-17 is $8.471 billion, 6.8% higher than Estimate 3 for 2015-16. "Estimate 3 is 16.5% higher than Estimate 2 for 2016-17. Equipment, plant and machinery is 16.8% higher and buildings and structures is 15.9% higher than the corresponding second estimate for 2016-17.” Total investment in manufacturing for 2015-16 was $8.507 billion.
And the big surprise was the continuing strength in investment plans in other industries. The ABS said Estimate 3 for Other Selected Industries for 2016-17 is $54,997 billion. "This is 4.2% higher than Estimate 3 for 2015-16. Estimate 3 is 15.5% higher than Estimate 2 for 2016-17. Equipment, plant and machinery is 20.9% higher and buildings and structures is 10.3% higher than the corresponding second estimate for 2016-17.”
The ABS also pointed out that whiles pending on building and structures will be down in 2016-17 compared to the year to June, the gap is narrowing. "Estimate 3 for buildings and structures for 2016-17 is $64,357m. This is 16.2% lower than Estimate 3 for 2015-16. The main contributor to the decrease was Mining (-25.8%). Estimate 3 is 13.8% higher than Estimate 2 for 2016-17. The main contributor to the increase was Mining (16.5%).
And for mining "Estimate 3 for Mining for 2016-17 is $41,705m. This is 24.2% lower than Estimate 3 for 2015-16. Estimate 3 is 14.5% higher than Estimate 2 for 2016-17. Buildings and structures is 16.5% higher and equipment, plant and machinery is 4.4% higher than the corresponding second estimate for 2016-17.”
In other words the mining is still alive – it is has not died, as anyone might think after reading the comments from mining giants such as BHP Billiton, and mining service groups, such as Boart Longyear and Emeco Holdings. Mining investment isn’t booming, but it is not dead, it is still happening and will play an increasingly important part in the coming financial year as global commodity prices continue their tentative recovery.
And to add a note of caution – according to the Reserve Bank there are areas of the economy and business that are not touched by these quarterly surveys from the ABS, meaning the investment spending figures are on the low side.
The Reserve Bank is in fact sceptical about the level 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.”
And if these figures are underestimating the level of investment, is that also underestimating the level of growth?
