The investment report showed that investment dropped another 5% q/q in real terms in the June quarter, the second straight decline – spending had dipped 5.4% in the March quarter. By sector, spending fell in mining in the June quarter (down another 16%, after a 13% fall in Q1), which is not unexpected, but there were increases for manufacturing (up 13%, following two straight falls) and for “other industries” (up 1%, the third straight rise).

The all-important forward looking investment spending intentions included firms’ final update for the 2015-16 fiscal year, and their revised (third) estimate of spending for 2016-17. Firms still expect to trim their spending in the current fiscal year, after a 15% dive in 2015-16, but the expected fall this year is smaller than the decline implied in the previous survey. Firms now expect total spending to drop 13% in the year ended June 2017 – previously, the projected fall was 20%. As before, the largest fall is for the miners.

On the evidence in this report, many firms remain reluctant to invest, but at least there are glimmers of hope that spending plans are firming up a little. Firms’ reticence to spend more has been despite record low interest rates, and the previous underinvestment which, at face value, should mean that increased investment is overdue in many sectors of the economy. The absence of what RBA Governor Glenn Stevens has called “animal spirits” probably is to blame, but at least there are signs that some of the previous pessimism is fading.

Meanwhile, the retail sales report showed that spending was unchanged in July (actually, it dropped marginally, but the fall rounds up to zero), after the bare 0.1% gains for both May and June. Sales were strongest in the food category (up 0.7%), but there were falls in the more discretionary areas of spending, including department stores (down more than 6%), and on household goods (down 0.7%). It seems the consumer is another reluctant participant in the economy’s stop-start rotation towards more non-mining sources of growth.

Investment Spensing