Subdued business investment


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By CommSec

Business Investment

  • Investment falls: New business spending on buildings and equipment fell by 4 per cent in the September quarter. Spending on buildings fell by 5.7 per cent in the quarter while spending on equipment fell by 1.9 per cent. Investment is down 13.7 per cent over the year.
  • Expected business investment: The fourth estimate for investment in 2015/16 is $106.9 billion, up 1.7 per cent on the third estimate but down 14.3 per cent over the year. Over the last six months, investment expectations have lifted by 17.1 per cent.

What does it all mean?

If you just looked at the top level results, there wasn’t a lot of good news in the business investment report. Spending recorded a sizable quarterly fall, expectations of future investment are down over 14 per cent compared with a year ago and the weakness was across all the states and territories bar Victoria and Queensland. But this is really backward looking, categorising an environment that included the lead up to the Federal Election and Brexit – hardly an environment that would see businesses lift investment plans.

However the main good news or rather glimmer of hope was the lift in expected investment plans compared with last quarter. The fourth estimate for 2016/17 is $106.9 billion, up 1.7 per cent on the third estimate (June quarter). In addition investment plans have lifted substantially in the past six months, up by 17 per cent.

Encouragingly the lift in investment plans over the last couple of quarters, may be a sign of a shift in momentum by the business sector, but it is too early to tell. Certainly the lift in business conditions in recent months may be supportive of a lift in investment plans – especially in light of the surge in commodity prices and improvement in the global economy. No doubt the rebalancing across the economy is also being supported by the slide in the Australian dollar – an outcome that should garner further traction in coming quarters. But as we have seen in the past, business may plan for future investment but then mothball projects if the economic landscape doesn’t improve.

Business spending looks like continuing to be a weight on Australia’s economic growth performance in the medium term. The Reserve Bank could cut rates again, but it is far from certain that this would have a measurable impact in further lifting business spending. The Reserve Bank is more forward-looking and is likely to maintain its neutral bias on a more upbeat medium term growth outlook.

What do the figures show?

Private business investment

  • Overall: Business investment (spending on buildings and equipment) fell by 4 per cent in the September quarter after falling by 5.2 per cent in the June quarter. Spending on buildings fell by 5.7 per cent in the quarter while spending on equipment fell by 1.9 per cent. Investment is down 13.7 per cent over the year with buildings down by 24.3 per cent while equipment was up by 4.6 per cent.
  • Sectors: Mining investment fell by 7.2 per cent in the September quarter (ninth straight decline), while manufacturing spending fell by 4.9 per cent, spending by “other selected industries” fell by 1.9 per cent.
  • States: In seasonally adjusted terms investment fell in six of the eight states and territories in the September quarter. Investment fell the most in Western Australia (down 11.4 per cent), followed by Northern Territory (down 10 per cent), the ACT (down 8.1 per cent), South Australia (down 4.8 per cent), NSW (down 3.5 per cent), and Tasmania (down 0.1 per cent). The only rise was in Victoria (up 3.3 per cent) followed by Queensland (up 2.7 per cent).
  • Prices: The overall deflator for investment goods fell by 0.3 per cent in the September quarter after falling by 0.5 per cent in the June. The cost of buildings and structures rose by 0.2 per cent while the cost of equipment fell by 0.8 per cent. Over the year, the cost of investment goods fell by 0.5 per cent – the largest fall 4½ years. The cost of buildings rose by 0.9 per cent while the cost of investment equipment fell by 3 per cent.
  • Forecasts: The fourth estimate for investment in 2015/16 is $106.9 billion, up 1.7 per cent on the third estimate but down 14.3 per cent over the year. Over the last six months, investment expectations have lifted by 17.1 per cent.

What is the importance of the economic data?

Private New Capital Expenditure and Expected Expenditure is released quarterly by the Bureau of Statistics. The figures show both actual and expected spending by businesses on tangible assets such as new buildings, machinery and office equipment. The figures are obtained after sampling 8,000 private business units.

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